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.

Let’s Talk Discounting

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.

Read More >

Use Price Anchoring to Price Your Virtual Event!

Are you struggling with how to price your upcoming virtual event?  If so, then this article is for you.

Read More >

Your Website is (Likely) Non-Compliant

Is your website ADA compliant? Can someone get from your main event page all the way through the registration process without barriers? How do you know? Run your website - either your association, organization or event site through a free online accessibility tool. Then work to correct areas of non-compliance with your web developer or designer.

Read More >

Top 5 Marketing Trends of 2021

It feels a bit overwhelming to be predicting what the new year may hold after powering through such an insane year. Nevertheless, there are a handful of trends we have been watching that give us a closer look into what’s to come in the world of marketing and communications in the coming year. Here are our top five:

Read More >

Now is the Time to Explore New Digital Non-Dues Revenue Streams

Associations have a unique opportunity to quickly evolve their communications approach to become more digital-centric. In turn, the addition of more digital communications allows you to open up more advertising opportunities, keeping your non-dues revenue streams flowing so operations can continue through the worst of this current crisis and prepare you for any that may come in the future. However, as you explore new digital communications your association can offer, keep these things in mind.

Read More >
By: | May, 29 2020
CommunicationMarketingVideo

Video Made the Marketing Star

Paragraphs rarely go viral. Videos do! More so than ever before, marketers are looking for a way to help their organizations and companies stand out from the crowd. Video is an excellent solution for grabbing the attention of those you wish to reach in a creative and engaging way. So, where to start? Making videos can be intimidating for a lot of folks, especially if your team is remote and expertise, time, and resources are limited. But, incorporating videos into your content marketing strategy doesn’t have to be daunting if you keep a few tips and tricks in mind. Assembled below are some best practices for creating quality videos that will help you foster deeper connections with your audience.

Read More >