Discounts are a great way to motivate price-sensitive customers into making a purchase; getting them off the sidelines and into your store.
The problem is that when discounts are applied automatically for all customers the reduced profit on sales that would have been made anyway offsets the extra profit from additional sales. The goal is to discount only when necessary to get the sale, and not discount to anyone prepared to pay full price.
Hurdles are a pricing tactic that allow you to discount selectively. By forcing customers to jump over a figurative “hurdle” to earn a discount you can be reasonably sure that you are only discounting to those customers that are truly motivated by the savings. Those that are prepared to pay full price continue to do so, and you don’t cannibalize full price sales.
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Here are some examples of well constructed hurdles, often with ancillary benefits such as good publicity, that you may be able to use in your business.
Early Bird Specials
One common example of a pricing hurdle is the “early bird” special often seen at restaurants. The restaurant knows that they would get more business if they promote a discount of 15%, but between 6 and 10 PM they are already at capacity. They don’t want to discount to those customers who are willing to pay full price to eat during those hours.
The early bird special selectively targets those customers who will jump the hurdle of eating at a much less desirable time. Lower matinee prices are a slightly different take on this. In both cases this hurdle also helps make more efficient use of capacity and help get more people into the movie theater or restaurant during off-peak periods.
Some movie theaters offer lower admission prices on Tuesdays. Most people would rather go to the movies on the weekend but to get a discounted price they have to go on a less desirable night.
This promotion is very popular with teenagers who talk and text throughout movies. This makes the hurdle even more daunting to adults that are more readily able to pay full price, and the theater gets to sell them a full price ticket on the weekend.
Some florists allow customers to bring in an old vase that the florist will fill with a discounted arrangement. The hurdle is that the customer has to bring in the vase and wait while the florist prepares the arrangement – enough to ensure that only customers who are serious about saving money participate.
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It is a beautifully contrasted hurdle for a number of reasons.
- There is a genuine saving for the florist in that they don’t have to supply a new vase.
- It targets a different – but highly sought after – flower buyer. Most flowers are given as a gift, but this promotion targets the person buying their own flowers. This customer is likely to spend less (making the discount essential to their purchase) but buy more often.
- It is easy and inexpensive to promote. Florists almost always have contact information for recipients in their POS systems, allowing them to contact the person a few weeks after delivery and suggest that they bring their vase in for a discounted refill.
- It’s also a great public relations opportunity. The florist can promote this “green” special as evidence of their commitment to the environment.
In this promotion customers who bring in a non-perishable food item (that the business owner will then donate to a food drive) are rewarded with a discount on purchases made during that visit. The customer has to jump the hurdle, in this case bringing the non-perishable item, again ensuring that only customers who are serious about saving money get to take advantage of the discount. It also gives the business owner a chance to generate some good publicity – local newspapers will often feature this kind of story.