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a discount trap portrayed by the visual metaphor of a figure chasing money and falling off track/a bridge

The Discount Trap

Valued at nearly $25 trillion, the U.S. market is the largest in the world. It is also one of the most competitive. Small and midsize enterprises (SMEs) interested in the U.S. market have likely already identified a need for your product/service or a gap in the market. However, one thing that largely goes unaccounted for during global expansion planning is the manner in which your competitor’s pricing and promotions can have an effect on your subsidiary’s marketing and sales strategy.

That’s right, we’re talking about how to avoid falling for the Discount Trap.

According to a 2018 survey, the influence of discounts on consumer behavior is quite significant. In fact, two-thirds of consumers admit to making unplanned purchases based solely on finding a coupon or discount. But what does that mean for your company? Well, it largely depends on your industry. However, understanding the psychology behind discounts is an important facet of understanding the market landscape and the ways consumers behave within it.

The Psychology of Discounts

It can be tempting to give in to the demand for discounts. The prospect of saving money, whether through a promotional offer or a well-timed coupon, can act as a powerful incentive for buyers. A 2012 study found it can even result in biophysical reactions that trigger a 38% increase in oxytocin levels, and a reduction in stress indicators such as reductions in heart rate (5%), respiration rates (32%), and sweat levels on their palms (20%). Those who received coupons also reported being 11% happier than those who did not.

Consumer Expectations and Perceptions

Despite many studies supporting the use of discounts on products, why is it perceived as a pitfall, let alone one business owners should be wary of?

  1. Immediate Gratification vs. Long-term Value. Sure, discounts can make people feel good when they buy something right away, but it’s tricky to keep them happy in the long run, especially if your business relies on repeat customers.
  2. Perception as a Value Indicator. Discounts are not just about lower prices; they also shape how people see a brand. If a brand always offers discounts, it might seem less valuable in the eyes of customers over time. If your value proposition is based on quality, this is particularly problematic.
  3. Building a Value-Centric Narrative. To get customers to love your product, businesses should tell a story that’s more than just about the price. What makes your offerings unique in terms of quality, innovation, or overall experience?
  4. The Challenge of Over-Reliance. Constantly offering discounts may condition consumers to always expect reduced prices and, again, perceive the value of your products or services as being less. Striking a balance between occasional promotions and maintaining the intrinsic value of offerings is essential for sustaining customer trust and loyalty.

How to Avoid the Discount Trap

So what’s the best way forward?

  1. Focus on value-based pricing.
  2. Build customer loyalty. You can create personalized experiences, offer a loyalty program, or more to reach sustained success.
  3. Clearly communicate your value proposition. This means investing in marketing to ensure your message has the right tone, reaches the right audience, and builds their trust.
  4. Educate your sales team. Equip your sales teams to articulate the value of products and services effectively. Provide them with the tools to handle customer objections without immediately resorting to discounts.

To ensure long-term success, it’s crucial to strike a balance between competitiveness and profitability. This means staying informed about market trends and adjusting pricing strategies accordingly while also prioritizing continuous improvement in product or service quality as well as the overall customer experience.

Need help getting your message out? MI’s digital marketing team can work with you to not only craft the right messaging for the U.S. market, but get it in front of the right audience.

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