Discounts Are Not Valuable

cheaperI attended a good session at the ASAE conference about pricing. It was not a ton of new information, but it did provide a good reminder about the importance of value-based pricing. That is, consider what alternatives your customer has, and then compare the value they get from those alternatives with the value they get from your offering. That will help you set pricing.

I like this approach specifically because it puts the customer at the center, not the organization. So often we (organizations) price based on our needs. Our costs go up, therefore we have to raise prices. But the speaker pointed out that we, as customers, don't shop that way. We don't even think about costs when we make the decision that $4.00 is too much (or not too much) for a pint of Ben and Jerry's. We just look at the Breyers on the next shelf over and decide if we can live without the chocolate covered pretzels, etc. We make a decision based on the value we receive (as defined by us) among the alternatives.

Shortly after this session, I was talking to an association client about the value they provide to members, and the word "discounts" came up a lot. In other words, part of the value of membership was the discounts they would receive when they bought many of the association's products and services later. I've heard a lot of associations claiming that these discounts "pay for" the price of membership. I've been thinking about it and I have a strong opinion about this:

Discounts are not valuable.

They provide me, the customer with no value. It is simply a pricing strategy. If I buy in bulk, I pay less per item. That's not value to me, that's just pricing. That pricing strategy might get me to buy, but it has nothing to do with the value I receive, so let's stop pretending that it does. What if you doubled your prices, and then doubled the discounts you're giving me. Would that double my value? No. Nothing would change, in fact.

What if associations started offering ALL of their products at the member pricing, gave EVERYONE a membership for free, and then at the end of the year charged a $100 "administrative fee" for those who signed up to be a member but did not purchase a requisite amount of products or services. That's the same as charging all members $100 dues but then giving discounts to members who buy stuff. (I'm not particularly recommending this strategy, but you get my point.)

Get clear on the value part first (as defined by the customer, not you), and then talk about pricing and discounts.

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