25 / 02 / 2021

Lessons in Discounting (Or Buy 9 Spatulas and Get the 10th Free)

When “Weird Al” Yankovic takes over a podunk TV station in the movie UHF, he runs some crazy commercials for Spatula City and its discounted kitchenware. While discounts draw shoppers, they’re generally not the desirable ones. If your product is top of the line, customers should expect to pay top dollar.

Carey Smith | Founding Contrarian

The year 2020 wasn’t all bad. Thanks to worldwide lockdowns, the canals in Venice cleared up, and for many people in India, the Himalayas became visible for the first time in decades. There was less time spent sitting in traffic, if you even had anywhere to go. And in America, while discounts were suddenly being offered on everything from college tuition to car insurance to meditation apps, this year we blessedly were spared the standard news reports of shoppers cramming the stores for after-Christmas sales, or lining up for Black Friday discounts in the middle of the night.

I never have understood the whole Black Friday phenomenon, just like I’ve never felt the point of rushing out to buy a mattress on Memorial Day or a car over Labor Day weekend, even though “experts” advise doing both.

I don’t believe in chasing discounts, and, back when I ran a fan company, I opposed slashing prices for Black Friday or any other day. So it should come as no surprise that when our partner companies want to offer special pricing — as they invariably do — we try to talk them out of it. Here’s our lecture, in a nutshell:

  • Any time you discount your product, you’re stealing from yourself, assuming your “regular prices” are an accurate reflection of value, which they damn well should be.
  • Slashing prices for a “limited time” deal communicates to customers that they’re being cheated the rest of the year. Any product that’s offered at 40%, 50% or 60% off is a product that’s probably not worth more than that discounted price any other day.
  • Offering discounts sends the message that either you lack confidence in your product or are desperate to make a sale, or both.
  • It sets a bad precedent — customers come to expect it.
  • Discount prices attract discount customers. You might as well go peddle your product in the parking lot of the nearest Dollar General.

What it boils down to is, by offering discounts, you’re lowering the perceived value of your product forever. Don’t do it. There are other ways to attract buyers that don’t cut into your margin. Add a warranty, for example, or extend a free service.

At the fan company, instead of cutting prices, we’d offer package deals: Buy two, get one at 10 percent off. It made sense to discount on multiples, because the cost of acquisition for the second, third or fourth fan was zero. And we were big on tchotchkes, too. People loved our “limited time” giveaways of glasses, T-shirts and especially our branded foam donkeys that fit in the palm of your hand and were ideal for hurling at co-workers.

Maybe my own skepticism about discounts and the whole frenzied holiday shopping phenomenon can be traced to my old man. He always tried to convince us kids that we should observe Christmas on Dec. 28. By then, he argued, prices on everything would be slashed. Imagine the piles of discounted gifts there’d be under the tree! What’s three more days to wait? His argument might have made sense, but of course we didn’t buy it. Christmas had to be on the 25th, we insisted. Celebrating it on any other day would not only set a terrible precedent, it would undermine the inherent value of Christmas Day.

Even we understood that.