WhiteSites Blog

Business Marketing, Death by Discount

Posted on Sep 28, 2007 by Paul White

In my eyes there are three types of companies
1. The type that depends on word of mouth, and doesn't spend any money on marketing.
2. The type that advertises its product or service, but only to create awareness to the consumer.
3  The type that advertises the price of its product or service, with the focus on the discount, or clearance pricing.

Examples of each of these.
The first type is usually only associated with ultra luxury goods.  These companies have so much free advertising through magazines and mass media, that they don't have to advertise.  Examples.  Ferrari, Lamborghini, Burgatti.

The second type are companies that are doing well, and just want more people to know about their product line.  Good examples of this are Honda, Lexus, IBM, Budweiser, Coke.  These companies are well known, but they advertise just to keep their name out there.  This kind of advertising it healthy depending on your product and industry.

The third type of company are usually not doing well.  They are desperate for customers, and as a result they slash prices in an attempt to draw in buyers.  The advertisements usually focus on discounts/ rebates / clearance ext...  Examples GM, Ford

This third type of marketing technique is what I call death by discount.  Yes they may get a spike in sales from doing such advertising, but the spike is not sustainable.  In the social world this type of advertising would be called drug abuse.  You get an awesome high the first time( keep in mind my experience with drugs is limited to Caffiene, and Ephedra when it was legal ), but over time the drug doesn't have the same high it used to.  Next thing you know you are drinking a gallon of coffee just to sustain life.  Companies in this kind of marketing campaign end up having to drop prices lower and lower just sell product.  Then when they don't discount, noone wants to buy.  Why?  because when you drop your prices and sell on discount it cheapens your brand's image.  As a result the consumers that only want to buy products that will enhance their own personal image will no longer purchase.  You have now are limited to the demographic of consumers that I like to call the " Have Nots ".  This group has low or bad credit, and little to no income to spend, and little education.  This group of people succeed in socialist environments where work and pay is gaurantted, and their pay is not based on performance, they also usually have pensions so they can retire.  Theses consumers only come out when its coupon time.  Companies like GM and Ford not only have deminished their company image to selling to this demographic, but they are also in the business of employing them.  Don't get me wrong Unions had their place back in the 1920's when workers were forced to work 6 or 7 days a week for 12 hours / day. But in today's global economy, they only hurt companies.  UAW constantly is trying to get more its workers from GM and Ford.  The Import dealers don't use unions, they directly employ their own employees.  This allows them to change worker policies and enforce them immediately to ensure the best productivity from its employees.

GM and Ford are in a pattern of drug abuse, and the only way to solve the problem is to immediately change this behavior.  GM and Ford used to make pretty shoty cars back in the 70s and 80s.  But today their quality is just as good as any other car.  The problem is they are still selling by discount.  If they quit this behavior, yes they are going to have a few bad years, from withdrawing themselves from selling to the Have Nots.  But in the end they will have repaired their image.  Consumers are more educated and image aware now than ever before.  Companies that do not keep up with this image will only fail. 

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