Discounting destroys value
I’ve been a pretty loyal customer of JoS. A. Bank (the clothier) for the past twenty years or so. I started buying shirts there when I was still in the Marine Corps and then stepped up my purchases when I was in graduate school at Penn - shirts, suits, ties, etc. The suit I wore my very first day at Goldman Sachs in 1988 came from JoS. A Bank and over the years, I estimate I’ve purchased at least a two dozen suits from the store - I figure that probably puts me in the ‘loyal customer’ category.
Because of this, I’m on their mailing list for specials and sales...and let me tell you, they’re working overtime when it comes to sales and discounting. Almost every week, the clothier advertises a new sale. And I’m not talking your typical 10-20% off sale for selected suits or shirts...no, they’re almost giving their product away. Here’s just an example of what came this week.
“BUY ANY SUIT at regular price and GET A 2ND SUIT FREE! Plus GET A SPORTCOAT OR BLAZER FREE!”
Great deal, right? Well, not really. Discounting like this destroys value. While it may draw new customers to the store, it changes the perception that loyal customers like myself have towards the product line. After years of paying close to full price for suits and shirts, I’ve now been conditioned to wait for sales and heavy discounting before I purchase anything more. For JoS. A. Bank, it will be a challenge going forward to convert loyal customers like me back to paying anything close to the full, listed price.
Authors Reed K. Holden and Mark R. Burton (Pricing with Confidence) say it best when talking about discounting: “There is nothing wrong with discounting. Sometimes it’s the right response. It’s the habit of discounting...that’s so destructive. It’s the addiction to discounting that we’re against. The difficulty with discounting is, as with all addictions, is that it is very difficult to stop. People get used to discounting.”
Here’s the takeaway. Frequent discounting destroys value. And when you destroy value, you destroy the relationships that have been built up over years with your loyal customers.