Pricing Compression: Why you Shouldn’t Discount Premium ProductsApr 18, 2022
If you are discounting premium products and brands, you are hurting the chance it gets repurchased at full price ever again.
Retracting discounts can be harmful. Customers have a tendency to lean on what has happened in the past to define what will happen in the future. This could mean they wait for the product to be discounted again, or choose a competitor if they don't see another discount.
This is particularly true for premium cannabis products. This is evident in repurchasing rates and retained gross margins. But what is premium?
Outside the cannabis industry, premium product discounts are far less common. Why? Because when a discount is applied to a premium product, it highlights the high price point which in many cases might be what we want to avoid.
Discounts are felt unequally between premium and accessible priced brands. Which we believe continues to be true in cannabis as well.
The Journal of Consumer Research found that higher quality, higher priced brands are less likely to be chosen after being included in a discount. They become less attractive to customers. Whereas lower quality, lower priced brands continue to be attractive to customers whether a discount is applied or not.
The result? Premium product discounting in the short-term with quality products influences the level of attention customers place on its price as an attribute.
There is a regularly offered price to quality trade-off. AND price is contextual- depending on the brand identity and preferences of customers.
- Avoid category discounts that do not differentiate between accessible and premium products
- If you are going to offer a premium product at discount, do it with the intention to get it out, and not to restock it
- Articulate for your team what is premium. This is relative to your own brand, customer preferences/ needs, and potential scarcity of the product
- Identify brands/ products not serviced by a discount
- Emphasize the features of the product that make it quality
- Measure and monitor what prices your products are sold at
Up for a little late-night reading? Researchers Luc Wathieu, A. V. Muthukrishnan and Bart J. Bronnenberg have an interesting article The Asymmetric Effect of Discount Retraction on Subsequent Choice from 2004.
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