Perhaps you’ve heard about JC Penney’s switch to Fair and Square Every Day pricing this year? Basically after discovering they were currently selling 3/4 of their merchandise at 50% off, they decided to offer three prices beginning February 1st: 1. “Every Day”, 2. “Month Long Value” (theme sales such as back-to-school related products in August), and 3. “Best Prices” (clearance). However consumers weren’t understanding the new lingo and now JC Penney’s stuck tweaking their pricing strategy again. As of August 1st, they’re going to eliminate one of the monthly sales and bring back the word “clearance.” Meanwhile their stock price continues to crumble.
As the retail giant struggles with pricing and the communication around it, I got to thinking about what a challenge pricing is for most companies. A lot of startup marketers and sales folks (including us) struggle with pricing, and particularly discounts. While of course you’re going to factor the cost of creating your product into the pricing, other variables like unknown demand make the art of pricing a bit more challenging.
Furthermore startups like Groupon and LivingSocial have recently been creating a growing demand for discounts in consumers’ mindsets. By helping companies offer their products at discounts to a wide consumer base, Groupon claims to help businesses attract new customers, whom they say will be back if they enjoy the experience the first time. Although it turns out many small businesses could risk going out of business this way, like Back Alley Waffles.
And shows like TLC’s Extreme Couponing have popularized the coupon fetish, showing off moms with entire garages stuffed with shelves upon shelves of toilet paper from their coupon-clippings.
So how do you know whether to give into the pressure or not?
Retrofit offers an interesting take on the discount dilemma in the FAQ section of their site:
I definitely appreciate the up-front honesty they’ve presented. They believe they’ve priced their products fairly and are standing by them. And they explain why pricing differently would be disadvantageous for their customers.
If you’ve got a great product, and its well differentiated, don’t succumb to the pressure to dip into discounts. And go ahead and be upfront and honest about it with your customers.