Rethink Price Discounting –Farquharson/Tedesco

Let's start off this month's column by talking about frozen yogurt.

Yeah, we know it's December, and right now the word "frozen" probably makes you think of tongues stuck to cold flagpoles. One of your authors has an ownership interest in a local franchise of a national frozen yogurt chain, and has learned some pricing lessons (dare we say intelligent discounting?) that may apply to the printing industry's on-demand/short-run segment.

This "froyo" franchise has a 10 percent discount built into its business model, meaning it offers a premium product at a 10 percent higher price point than its main competitors. But things even out because virtually every customer qualifies for a 10 percent discount. In the store's point-of-sale system, 60 different special discount buttons are programmed to give "affinity" discounts to people associated with specific schools, local businesses, churches, synagogues, sports leagues and community organizations.

Since the store opened, the actual redeemed discount percentage has run at about 4 percent, netting a 6 percent price premium. Also, customers are getting a deal on the best stuff in town, making this a mutually beneficial business relationship.

This "froyo" experience has got us thinking. Discounting doesn't have to be reactive and fear-based. It can be proactive, intelligent and aimed at accomplishing a specific business objective. Strategic discounting has the potential to boost profits, grow share of customer and even improve plant efficiency.

Now do we have your attention? But first, here's today's big hedge. There's no commonality between froyo and large-job commercial printing, at least not one we want to talk about now. So, let's turn our attention to on-demand/short-run printing.

Consider a cup of yogurt selling at $5 or $5.50. Customers won't think twice about the extra 50 cents as long as their froyo experience is heavenly. In fact, they won't even know about the price premium most of the time because 50 cents is insignificant. Better yet, they know they're getting a special deal—the amount doesn't matter—because their kid attends a school on the discount list. Now, you've created an affinity, which is a major step toward long-lasting loyalty.

Now, consider a $100, on-demand print job. Does it really matter if the price is $110? It might, but most people buy based on something other than price down at this price point. Turnaround, convenience, perceived quality and previous experience are the real differentiators. The nice thing about customer affinity programs is, if you get pushback on a $10 price premium, you can easily create a 10 percent affinity discount that removes the price barrier.

Is it possible you'll lose a few small print orders because of a pricing strategy like this? Sure. But you can get hit by a bus while crossing a street, too.

Let the numbers talk. Say our froyo pricing strategy does indeed translate to the on-demand/short-run print world. Our hypothetical $100 job—priced at $110, with a 10 percent affinity discount redeemed 4 percent of the time—will sell at an average of $106 per job. And, you and your customers both get a deal. Sounds like something to consider, eh?

Now, why did we hedge our argument by insisting froyo pricing principles don't apply to larger commercial jobs? Because buying motivation is different for print jobs at the $50,000 level. Of course quality, reputation, convenience and past experience still matter. But buyers making value calculations at this level consider price to be a much more significant factor. Simply put, $10 ain't the same as $5,000. Ten bucks is barely even worth an extra phone call.

Big commercial printers: we're not going to ignore you. Here are a few discounting ideas that might work for higher-volume printing businesses. But remember: discounting is fraught with danger. You must walk the line carefully—especially in thin-margin, highly-competitive industries like commercial printing. Let's continue.

Rewards Programs Create Repeat Business

It's a fact: the easiest and least expensive way to grow sales is to sell more to current customers. By rewarding clients and giving them an incentive to keep working with you, you'll earn their continued loyalty and more of their business.

Enter the Customer Rewards Program. You can reward frequent customers with exclusive offers, priority scheduling and other perks—and we highly encourage these—but for now let's focus on discounting.

Here's one idea for a customer rewards discount program that may help drive both sales and profits. After sending you a certain dollar amount of work per fiscal quarter (say, $25k), enrolled customers get a discount "credit" that's a percentage of what they spent. They can apply this credit to any job they send you within the next six months. If you like this idea, consider rewarding clients that reach predetermined spending "tiers" with escalating reward credit values.

Rewards discount programs make it appealing for customers to work with you again…and again and again. Hello, increased share-of-customer!

Value of Short-term Production Discounts

One of the ugliest sights in any printing facility is a large printing press sitting idle. Here's a potential solution: create a short-term production discounts program. Say you scan your future production schedule and see a big hole for one of your web presses. If you crunch the numbers and determine you'll be better off filling that capacity with a discounted job—rather than letting the press time opportunity vanish like a match flame in the wind—then go for it!

Consider targeting the ultra-price-sensitive, high-volume bottom feeders in your marketplace. Let them know about your available press time and create a special deal for them, on your terms, not theirs. You could even structure a marketing/sales outreach program specifically focused on promoting these short-term discounts. But, craft this program carefully!

Reactive Discounting

How many times do salespeople hear "your price is too high?" Experienced sales reps should have an arsenal of rebuttals to this annoying phrase. Sometimes they work, sometimes they don't. Sometimes, we have to march into The Bossman's office and beg for a discount.

Our core selling principle is to never give anything away for free. Before groveling on an "apples-to-apples" job (i.e., no job engineering changes are possible), explore with your customer what you can get in exchange for pleading their case for a discount. Potential bartering chips include extra production time, midnight press checks, guaranteed receipt date for artwork or customer job pickup. You could also ask for marketing help in the form of cooperation on a future case study or rockin' testimonial.

You get the picture—you want the $50k job and might be willing to take $45k for it. But make sure you get something of value in return. This is still the only way reactive discounting makes sense.

The days of "no discounting, ever!" are over—at least for us. Discounting at the right time, for the right reason, can be a path to better sales, higher profits and happier clients. PI

—T.J. Tedesco, Bill Farquharson

About the Columnists
T.J. Tedesco is team leader of Grow Sales, a marketing and PR services company that has served graphic arts companies since 1996. He wrote "Direct Mail Pal 2012" and seven other books. Contact Tedesco at (301) 294-9900 or e-mail tj@growsales.com. Bill Farquharson is the president of Aspire For. Through his Sales Challenge and Tuesday eWorkshop training programs, Farquharson can help drive your sales. Visit his Website at www.aspirefor.com or call him at (781) 934-7036.