FRESH PICKLES

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The Danger of Discounts (and why we’re stopping them)

The Danger of Discounts (and why we’re stopping them)

 

During our first year as a fresh new pickled startup, we leveraged the psychology of discounts and promotions to help move a lot of graphic design subscriptions. While a relatively common strategy, what has become clear over the long-term is this sales mechanism does more harm to our brand and overall revenue strategy when compared to the resulting short-term influx of sales.

In this post I will discuss the high-level theory around discounting, how we leveraged discounting and the impact those promotions had on our business. Finally I’ll share our new and updated sales strategy for Q1-2016 – and offer a promotion! Just kidding on that last part 🙂

Today Only! 50% Off!

I live in Scottsdale, Arizona and if you’ve ever been to Old Town Scottsdale you’ve undoubtedly seen the Southwest tourist shopping mecca. Window fronts overflow with dreamcatchers, indian pottery and other kitschy items that most of us here don’t think twice about. Many of the shops display sales like this one:

 

50% off

As a local, I’ve observed a) the sales never end and b) the stores never close.

Shop owners are clever and leverage a powerful marketing tactic geared towards tourists, a type of influence first outlined by Dr. Robert Cialdini in his book Influence called scarcity. Scarcity is the psychological effect we have hard-wired into our brains triggering action on a decision when we sense fear and/or the opportunity may pass us by. This fear has been popularly coined FOMO – the fear of missing out – and is deep rooted in our triune brain (aka the caveman reptilian brain). When the world lacked on-demand calories provided by Whole Foods or Postmates, we had to act fast if we saw food or other resources needed to survive. If the prehistoric bison ran away before we decided to kill it, we’d starve to death and die. Starvation is the ultimate consequence of FOMO.

Starvation is the ultimate consequence of FOMO.
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In the United States, while not eradicated, we rarely face the same life or death challenges which hardwired this scarcity trigger into our brains. Yet we are still triggered by the illusion of scarcity, forcing (influencing) us into action.

Digital marketers use this tactic with laser precision. Amazon is the master and uses endless scarcity tactics throughout their shopping experience:

scarcity

A common framework for creating scarcity around a product or service uses the “launch” technique. Recently I wrote about the basics of a launch strategy. A launch strategy simply chokes supply either through how many items are for sale, how long you have to buy the items or a combination of both.

The simple truth is scarcity works in marketing. It is a biological response and when executed correctly, difficult to counter.

A Limited Time Pickle

I fell in love with scarcity marketing because of the simplicity. Limited offer + limited timeline = Campaign! Our biggest sales month of 2015 leveraged this psychological tool providing a huge discount to new subscribers. My professional background included ample trade show marketing where this type of sales tactic rules supreme. There was no surprise I defaulted to this strategy for the early months of Design Pickle.

Through all of this a close friend of the company commented he would not trust our pricing considering how often there were promotions or price variations. Admittedly – I began to overuse scarcity marketing and sales techniques and I suddenly realized a scary truth: I was addicted to scarcity driven promotions!

Addition occurs when your brain requires some action or drug to release of the “happy chemicals” (PDF) – dopamine, oxytocin, serotonin and/or endorphins. With regular artificially stimulated release, your brain becomes conditioned to the drug/stimuli and you must increase use to trigger this reward. Sales trigger my happy chemicals but through the year it was getting harder and harder to achieve the same sales results.

Despite our initial success with promotions, I later realized my audience was becoming conditioned to our offers. To get the same desired reward (sales) we had to cut deeper and deeper into our pricing and/or invest more into creating the illusion of scarcity through increased marketing and messaging.

The pickles hit the floor in November and December 2015 when our revenue came in almost 30% below our expectations. Over time all of these promotions had cannibalized our MRR (monthly recurring revenue) and we didn’t adjust our forecasts accordingly. In addition to the revenue debacle we ran one final promotion in late December and received ZERO sales.

 

zero

We had hit our saturation point and it was clear we had to change our sales strategy dramatically in 2016.

Realizing True Validation

Looking back at 2015 a lot of the year was spent validating our business model. I can now see how running a promotion – triggering the scarcity part of the brain in our prospects – provided this validation through the ultimate proof: sales. What I didn’t realize was the unintended consequences of eroding buyer’s trust and in turn our own revenue.

I didn’t have to look far for other validation of what we were doing. Many great things happened when we reflected back on 2015:

  • We hit 10,000+ requests in a single calendar year
  • We received dozens of unsolicited client testimonials
  • Our churn fell to single digits in Q4
  • Close to 50% of the people who did cancel, did so as happy clients who simply didn’t have a current design need
  • On average we grew 20% month over month

These five things were more validation than any quick sale would ever provide. When I think about the global landscape of businesses and marketers I know there are 1,000 people who would easily pay $2,500+ more a month for our unlimited graphic design service. For our “retail” price to be a fraction of that rate makes me realize how insane our discounting strategy was over the long term.

Click here to see how Design Pickle works!

Moving Forward

As you can probably guess, Design Pickle will no longer offer sales, promotions and/or discounts as a part of our sales strategy with two exceptions.

The first exception will be current clients who wish to upgrade to annual billing. These people have proven they are a good fit for our tool and are willing to pay for an entire year up front. Because of this we can afford to offer them a more competitive rate with our service.

The second exception will be prospects who have taken time to learn about our company through our webinars or through our written content delivered by our email automation tool. We spend a lot of time with this content and as a thank you people who consume our materials will receive a 1-time first month discount, typically 20% off their first month.

In hindsight the decision to eliminate scarcity from our marketing tool-belt could only come with the confidence and validation we’ve now received through other mechanisms. If you’re in the early stages of your business or marketing campaigns, I urge you to seek out these alternative types of validation as well. In doing so you gain confidence and a strong position in the sales conversation that perpetuates further success. Some areas to consider would be:

  1. Qualified leads generated
  2. Customer satisfaction
  3. Percentage growth
  4. Customer utilization of your product/service
  5. Share of marketplace

While the dollar is the ultimate symbol of validation, remember not all dollars are created equal. Over time discounting and promotions can erode the value of your dollar and – as it did with us – give you false confidence on the overall health of the company.



Below are the creative source files for six different campaigns we did in 2015 – 100% free! Want to dive in deeper? Check out the Weekly Training hosted by our Founder Russ perry reviewing the files and diving into more detail on how we used discounts.