Promotions strategy when discounting doesn’t make sense

By: Jack Winston

The hype over group discounting, daily deals, and location-based, deal-finding services has focused new attention on a well established promotional tool. Offering discounts to attract new customers or reward loyalty has been a staple of promotional marketing for over a century (discounts were originally used to attract new customers to aspiring young brands including Coca-Cola and Grape Nuts Cereal). While location aware discounts on your mobile phone do enhance the promotion by being more focused and timely, discounting has the same economic implications as it always has. You should only offer discounts if either:

1) The short-term increase in business generates more profits at the reduced price than the steady state profits at normal prices

-OR-

2) The long term business from new customers acquired by the discount promotion justifies a short-term dip in profits.

Another important promotional marketing concept is the fact that in certain businesses, discounting your primary product or service just doesn’t make sense.

Take gas stations for example. The economics of retail gas sales simply do not justify deep discounts to a station’s standard pricing. A given station will set a pricing strategy that takes into account variables including the daily spot price of crude oil, station/location specific markups, nearby competitive pricing, and convenience premiums (that is, does your station have a Dunkin-Donuts that calls to me as I drive by). Offering a steep discount to your standard gas price may temporarily lure in more customers, but unless you have something compelling to keep them coming back, they have no reason to return once the promotion ends.

For many businesses, driving a short term increase in business through a deep discount is unlikely to produce a long run increase once the promotion ends. In some cases, it may be possible to offer discounts on other items that attract new customers that buy more of your primary product. Think of all the gas station signage promoting “lowest legal cigarette prices” or “insanely cheap soda.” Or in the case of this novel Groupon Deal, you happen to have deliciously famous tacos to lure your customer in for otherwise competitively priced 87 octane.

So what do you do if you don’t have awesome tacos and your convenience store just isn’t enough to differentiate you from your competitors? Promotions based on instant win games can be a great tool to engage your customers at the pump. The same applies for other businesses where discounting your core product just doesn’t work. Sometimes, a chance to win something valuable besides your core product is sufficient incentive to differentiate you from your competition. Furthermore, if you couple promotions with a push to engage your customers on social medial, you have the opportunity to connect with them once they leave.

Yes, the message is that Bozuko works perfectly for all businesses – even those where discounting programs just don’t make sense. Visit Bozuko for Business to learn more about how we are helping businesses get more out of their promotions dollar. Try to keep up with Bozuko by subscribing to our blog, following us on Twitter, and liking us on Facebook.

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P.S. The FCC proclaims that it is in fact safe to play Bozuko on your mobile phone while pumping gas. It is absolutely unsafe to play Bozuko while driving, performing surgery, or performing your duties as a rodeo clown.