How discounting is hurting retailers

Your pricing policies are costing you sales in ways you don't realize. Last week I stopped by the store to buy a bottle of wine as a thank you gift. Normally the wine sells for $18.99. It was on sale for $7.94. I almost didn't make the purchase because the price didn't reflect the quality.

Every time you lower the price without asking the customer to give up something in return, you immediately cause confusion. That confusion can easily translate into lost sales. In this wine example, I knew that:

• This wine was a quality brand.
• I had enjoyed it on a number of occasions.
• Everyone to whom I'd ever served it liked it.
• It was certainly worth the original asking price.

Despite this knowledge, the low price caused me to wonder:

• Was there a problem with this particular batch?
• Had it reached its expiration date?
• Was my memory faulty?
• Was I confusing this wine with another brand I'd tried?

These doubts, this confusion, caused by incongruency between price and quality almost cost this store the sale.

Even though my history with this brand did allow me to make the purchase, it was less than satisfying. I couldn't rid myself of the doubt that I'd made a mistake. It also made me feel cheap to think that I might inadvertently be giving an inferior wine as a gift. If I'd have had the time, I would certainly have gone to another store to alleviate my fears. I'm sure that's not the customer experience this store intended when it lowered its price, but it's the result nonetheless.

My wine experience isn't an isolated instance. A television ad by a well-known retailer offered a cordless drill, normally $189, for $81 dollars. If I had bought that drill within the last few months for $189 I'd be pounding on the customer service desk wanting a refund of the difference. Even if I were successful in getting that refund, which is highly unlikely, I'd still feel that I couldn't trust the retailer to be honest in its dealings with me.

If, instead of just having bought the drill, I was in the market for one, the low price would cause concerns similar to those I experienced with the wine. Is there a manufacturer's defect with the product? Will I have to replace the drill within a year because it's not up to the job I? If I'm a tradesman, will this drill cause me down time? If so, it's going to drive my costs up and my customer satisfaction down.

These concerns are real to buyers. They're concerns that keep buyers from developing the trust and confidence in us that would cause them to come back to us time after time. These are the same concerns that keep them from recommending us to family and friends. Worst case scenario — these concerns cause them to come back only when they have no alternative. That's a lot of lost sales.

So what's the message? If you want loyal customers, make sure that your price supports the customer experience your customer desires. Customer loyalty hinges on a number of factors:

• Customers must feel good about their purchase.
• Feeling good means feeling confident about the choice they made.
• Confidence in their choices comes from knowing that they made an informed decision.
• That knowledge stems from the fact that your prices match your marketing/sales messages, the quality of the product and the quality of the customer experience.

This concept works regardless of the level of quality or service the buyer desires. If a buyer is looking for disposable plates for a child's birthday party, a one-time-use product for people who could care less about aesthetics, she may go to one of the dollar stores. The price matches the quality. She knows that she's not getting much quality, but she's paying an extremely low price as well.

On the flip side of the coin, if she's looking for a high-quality item with image enhancement capabilities, the price better reflect both or she's likely to pass on the item. When the situation calls for high quality and that quality is going to reflect on her, she doesn't want the kind of doubts I experienced with my wine purchase.

Stop confusing the market. Make sure that your pricing supports your marketing/sales claims, the quality of the offering and the quality of the customer experience. You'll enjoy greater revenues, higher margins and greater customer loyalty.

Dale Furtwengler is a professional speaker, author and business consultant. His latest book, Pricing for Profit, is dedicated to helping organizations break the bonds of industry pricing. For more examples of how pricing impacts the customer experience, visit his Pricing for Profit blog atwww.pricingforprofitbook.com.