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Rethink Price Discounting –Farquharson/Tedesco

December 2012

Let's start off this month's column by talking about frozen yogurt.

Yeah, we know it's December, and right now the word "frozen" probably makes you think of tongues stuck to cold flagpoles. One of your authors has an ownership interest in a local franchise of a national frozen yogurt chain, and has learned some pricing lessons (dare we say intelligent discounting?) that may apply to the printing industry's on-demand/short-run segment.

This "froyo" franchise has a 10 percent discount built into its business model, meaning it offers a premium product at a 10 percent higher price point than its main competitors. But things even out because virtually every customer qualifies for a 10 percent discount. In the store's point-of-sale system, 60 different special discount buttons are programmed to give "affinity" discounts to people associated with specific schools, local businesses, churches, synagogues, sports leagues and community organizations.

Since the store opened, the actual redeemed discount percentage has run at about 4 percent, netting a 6 percent price premium. Also, customers are getting a deal on the best stuff in town, making this a mutually beneficial business relationship.

This "froyo" experience has got us thinking. Discounting doesn't have to be reactive and fear-based. It can be proactive, intelligent and aimed at accomplishing a specific business objective. Strategic discounting has the potential to boost profits, grow share of customer and even improve plant efficiency.

Now do we have your attention? But first, here's today's big hedge. There's no commonality between froyo and large-job commercial printing, at least not one we want to talk about now. So, let's turn our attention to on-demand/short-run printing.

Consider a cup of yogurt selling at $5 or $5.50. Customers won't think twice about the extra 50 cents as long as their froyo experience is heavenly. In fact, they won't even know about the price premium most of the time because 50 cents is insignificant. Better yet, they know they're getting a special deal—the amount doesn't matter—because their kid attends a school on the discount list. Now, you've created an affinity, which is a major step toward long-lasting loyalty.

Now, consider a $100, on-demand print job. Does it really matter if the price is $110? It might, but most people buy based on something other than price down at this price point. Turnaround, convenience, perceived quality and previous experience are the real differentiators. The nice thing about customer affinity programs is, if you get pushback on a $10 price premium, you can easily create a 10 percent affinity discount that removes the price barrier.



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