Blog FPO

Let’s Talk Discounting

This guest blog post is by Dr. Michael Tatonetti and was originally featured by Pricing for Associations.

Discounting is something that we love to talk about in the hopes that we will drive additional sales, but will it drive additional profitability?  In this article, we're going to discuss why discounts are not necessarily bad and the proper way you should use them. 

To start, discounting should not be your first line of defense. Most organizations see discounts as a way to boost sales, but the research shows us its very easy to miss this mark.  In fact, my own observation is that many associations believe more people will purchase, subsequently increasing their bottom line. Why does this often fail?

First, discounting actually hurts your profit margins.  When you discount, we typically need to see at least 5-10% to make anyone think the discount is worthwhile. When you account for the volume needed to make up for that discount, analysis usually finds that you won’t gain the market share needed at scale to improve bottom-line profitability. 

If you are offering a digital training for $100 and your direct and indirect costs total $60, a 10% discount hurts your profits by 25%.  Not accounting for the difference in fixed and variable costs, for every 3 tickets you sell to this digital training, you’ll need to sell 1 additional to hit the same profit.  Therefore, if you won’t increase enrollment by over 33%, you are losing money by discounting. 

Second of all, if you discount too drastically and without proper pricing strategy, your offer can reek of desperation. This triggers to your members that what you are offering is not worth the value you said - ultimately that you didn’t do the proper work of evaluating your pricing and value for this offer.  You never want your members to lose trust in your value as an organization.

So how do you properly discount?

The key to discounting is to have your audience perceive the value as slightly higher than it is to get them off the fence, not necessarily to increase sales. Discounting allows for you to price anchor and say a particular offer is normally worth a certain amount, but we’re making this a no-brainer by building in a discount.  The best starting place is to determine your real price, then add slightly to it - usually 10%-30% - to buffer in space for the discount.

One association I worked with had an event that was priced at $1,000 but offered an early bird rate that brought the price to $800.  To the public, this was a steal at 20% off.  To the association, it was really $800 and they budgeted for everyone to pay that amount, and anyone who did pay $1,000 added additional revenue. Psychologically, most shoppers are looking for a deal, so offering a discount allows them to remove the need to negotiate or question every feature of your offer in the pickiest of ways. 

When you do discount, do not just offer one discount.  If you are going to discount, it is proven that offering two layered discounts moves sales the most for those on the fence.

For example, if you are offering a virtual event for $1,000 and members receive $100 off plus there is an early bird rate for another $200 off, stack these from smallest to largest.  Do not combine the discounts into one.  Which moves you more?

  • “Our event is 30% off for members by December 1!”
  • “Members receive 10% off plus a 20% early bird discount for registering by December 1!”

With the second, it feels like an extra special bonus.  Again, put the smaller discount first because a smaller discount at the end will feel anti-climactic.  Going from smallest to largest feels like an even greater victory for the price-sensitive shopper.

By combining discounts and using discounting as a strategy to move those sitting on the fence rather than mass-scale acquisition, you can keep healthy profits for financial sustainability while serving value to match the price you’re truly charging.

 

--------

Dr. Michael Tatonetti is a Certified Association Executive and Certified Pricing Professional on a mission to advance associations in their pricing models for financial sustainability. As a Strategic Consultant and Trainer, he works with associations to harmonize pricing and value across membership, education, sponsorship, events, and marketing. He is also an Association Executive with Professional Pricing Society, overseeing education, certification, and strategy for marketing, membership, and sponsorship. Dr. Michael is a proud Association Forum Forty Under 40 honoree for his dedication to the association field.

Getting Ready for 2023…Already?

The reality that the second quarter is almost over means it is time for a mid-year check-in and the ramping up for 2023. Specifically, as it relates to sales planning and business development, here are a few things you may want to prioritize in the coming weeks as we reach the mid-year mark. 

Read More >

Braving Trust at Work

We often think of trust as something that is important in establishing healthy personal relationships, but trust is important in our professional relationships as well. But how do we build this professional trust? 

Read More >

A Practical Guide to Stakeholder Mapping & Why It’s Important

There are two primary groups of people involved in your organization’s strategy work: participants and stakeholders. Depending upon their lived experiences, tenure in your industry, engagement with your organization, and a host of other factors, the opinions, insights, and recommendations of your members are going to vary greatly. Want to test it out? Ask a group of 10 members how to solve just about anything and you’re likely to get several dozen suggestions. And that’s because how people see the world, including the blocks and barriers impeding our organizations from achieving their preferred visions, varies.

Read More >

Navigating Difficult Conversations Using Nonviolent Communication

During a recent strategic planning session, participants were working in small groups when Aaron overheard a participant make a comment that didn't sit well with their colleague.  Aaron and his co-facilitator brainstormed a course of action and turned to nonviolent communication.  This is how it went.

Read More >

Value Proposition Is a Growth Process

For any organization, value proposition is the fundamental building block of growth. Understanding the process of managing your value proposition is vital, but challenging – especially for non-profits. Here are some do's and don'ts of a value proposition process:

Read More >

10 Practical Ideas for Overcoming the Implementation Gap

You’ve completed the strategic planning process. Now what? How do you ensure the plan doesn’t collect dust on a shelf or get filed away on your computer never to be viewed again? The first step is recognizing the implementation gap is a very real phenomenon. The second is arming you and your team with the tools and resources necessary to overcome it.

Read More >