We are all besieged by advertisements where a company is trying to gain new customers by
offering all new customers an incredible discount. “Sign up today and get 50% off for the first year” scream the ads. And then they get to the last sentence, “offer good for new customers only.”
Wow, what a slap in the face to the existing customers who have been loyal for years only to find out that the extra fees they have been paying are now going to augment a discount to new customers only.
We get it, it’s 2022 going into 2023, the world has changed, and things are moving forward. Businesses have accepted the new normal and are evolving their approach to business. As they do that, the typical pressure will be on generating revenues, profit, and cash flow.
In our advanced Advantexe Business Acumen programs, we teach a concept called the Revenue Growth strategy framework. In this simple framework, there are two axes, your customers and your products/services. When you lay it out in a matrix, it presents you with some interesting strategic dynamics. For example, when you are looking to grow your revenues, the easiest and most profitable way is to sell more of your existing products to your existing customers.
The next most profitable is to sell new products to existing customers. It’s harder work and you need to be able to understand the needs of your customers and present to them a value proposition that solves their needs with a new approach and new products/services that didn’t previously exist.
Another way of generating new revenues is to develop new customers. You can do this in two ways; sell existing products to new customers or sell new products to new customers. Both a less profitable because of the R&D and Marketing expenses associated with bringing in new customers but over the long term, new customers will turn into existing customers if you treat them well and deliver on your value proposition.
Getting new customers is hard work, but when done the right way you are building your business for the future. The right way is to deliver a value proposition that new customers understand, appreciate, and are willing to spend money on.
The wrong way is to discount your way to more revenues. This is a mistake for 3 reasons:
- These new customers are transactional – You discounted your prices this year. Next year your competitor will discount even further, and the “new customer” become a gone customer because their transactional mindset is looking for the next deal.
- It will really upset your existing customers – I’ve heard story after story of existing customers complaining about the treatment they get when finding out that despite being a loyal customer for 10 years and paying full fees for the full value, the new customers are getting a huge discount. The loss of credibility and brand cannot be effectively measured but it is huge.
- It is extremely difficult to raise prices once they have been significantly discounted – The advertisements for cable TV, mobile carriers, and many software-as-a-service(saas) providers all say that the discounts are a one-time offer, and the prices will go to something resembling "normal pricing” after a year. This is true until the negotiations start or the customers just leave as in point #1 above.
In summary, the temptation to discount your prices to acquire new customers and generate more revenue is overwhelming. It seems like everyone does it. The advice from here is don’t do it. It is simply not an effective approach, especially if your overall strategy of one of customer intimacy or product leadership.
