Part 1 – Discount Codes

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In this, the first of a series of articles on the science of pricing, we are considering Discount Codes and how they can be used effectively to increase sales.

Discount codes are known by many different names – sales codes, discount vouchers, reseller reference and more. Whatever you choose to call them, they are simply a way to apply a fixed financial discount or percentage discount. They may be valid permanently, for a limited period of time, or after a predefined number of uses. They are a really great way of encouraging your customers to purchase your product or service which they might otherwise have procrastinate on. Customers might consider your product as valuable and definitely something they would ‘consider’ buying, but without any sense of urgency. Discount codes are a way of introducing a sense of urgency to what otherwise might be considered a ‘mundane’ or ‘nice to have’ service.
e.g. Once only offer, the first ten customers in August get £100 discount.

Discount codes need to be managed carefully though. The flip-side of discounting is – you are setting your customer’s expectations that you are prepared to offer your product at a discounted price. This could devalue your service, so care needs to be taken when considering how much discount you are going to offer and how you plan to advertise the offer. This is an area we may be able to offer some direct help with.

Our Local Country Pub

Let’s consider an example of how discount pricing is not necessarily always a good strategy. Our local country pub is a part of a major chain and set in an idyllic location with a picturesque thatched roof; it really is the perfect place to eat. A great park for the children, safe parking and good service. The food was average but they had a good choice of drinks and pets are welcome. What more could you want. They ran the most amazing discount offer. £9.99 for two main courses and kids eat free. Plus, you could order a heavily discounted starter or pudding. Amazingly, this offer was even available at the peak times of the week and weekend. All you had to do was apply online for a discount voucher. They ran this offer for a couple of years. Unsurprisingly, they were always busy. We have two boys, so as you can imagine, we enjoyed eating there with friends regularly. Eventually, the pub was taken over by another chain, and the offer ended. The revised menu was not particularly competitive and the food was still average. Because we had regularly visited the pub and the discount offer had been on offer so often, we just could not justify paying four to five times the price for the same meal and service. Perhaps this is a little mean, but discounts set a level of value and expectation in the minds of your customers. So whilst the pub was busy, and maybe they made a profit on the drinks and dog biscuits, if my family and I are representative of the average local, it simply lowered our expectations in the long term.

The Best Use of Discount Codes

Discount codes are best used to introduce a sense of urgency to a purchase. If discount codes are readily available on a regular basis, there is a risk customers can change their buying patterns to simply take advantage of your discount codes, or worse, lower their expectations of your products and services based on the expected discounted price. Discount codes are a very powerful pricing tool, but they should be used with care and consideration. Used too often, they may actually have a detrimental effect on your sales rather than increase sales.

I hope you benefited from our consideration of discount codes. Follow us for the next article in this series of ‘pricing strategies that work’.

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