Whether you've just set up shop and it's time to determine your pricing structure, or you're thinking it's time for some price point revamping, pricing products and services can be tricky business. There are various reasons you might be considering discount pricing, but is it the right move?
Products vs. Services
When you're talking discounts, the success of a sale or discounted offer can depend heavily on the type of business you're in. Jacob Holton, a behavioral economist and founder of EfficientHuman.com, says discount pricing is rarely a viable strategy for service-based businesses, because services aren't scalable in the same way that products are. "With physical products, the perceived quality of the product depends on a lot of factors besides price. With the right marketing, packaging and overall presentation, competing on price can drive volume and create a fantastic advantage," Holton says.
Services are often perceived to hold more value at higher price points. Clients tend to believe that consultants charging premium fees are in higher demand and more skilled, assuming that demand for a top-quality service allows that person to command those fees.
Digital products, while technically not a service, follow this same philosophy. Holton explains, "With digital or information products, higher prices almost always translates to consumers thinking the product is a higher quality, within certain thresholds. For example, a $97 product seems better than a $67 product. But a similar product that costs $137 will sell way fewer units than the $97 product."
Discount Pricing Pros
A discount pricing strategy can produce great results if used under the right circumstances. For instance, if demand can be enhanced by discounting surplus inventory of a product, the business can quickly move it out to make room for a different or newer item.