Permit me to paraphrase, and hopefully not mutilate, the lead from a recent article on strategy + business, the Booz & Co. (nee Booz Allen & Hamilton) online magazine:

It’s a tough world ….  New technologies … have permanently changed the [law firm selection ]experience. Meanwhile, a sluggish economy and rising competition are testing brand loyalty. Many firms are responding with discounts in a bid to keep clients. … But this short-term fix often exacerbates the very problems firms aim to remedy. Over time, discounts train clients to buy only when there’s a discount, and each new round of discounts must be deeper than the last to get their attention. As prices fall, margins suffer. Any incremental revenue gains from promotions eventually shrink as the sale sign becomes a fixture …. Most troubling is the long-term damage to a firm’s brand when clients come to see it as a place that always offers discounts.

If you guessed the original article (“Kicking the Sales Promotion Habit“) was about retailing, congratulations.

But how different, really, is our world?  It’s worth discussing why any firm offering products or services can at times be sorely tempted to discount, what the consequences can be, and how to contain it.  Much can be learned from retail, which has gotten extremely sophisticated about pricing and using promotions (a/k/a discounts) strategically.

Here’s your five-step program to minimize damage and maximize the return you’ll get in client loyalty and brand stature when discounting has become a bad habit.

Step 1: Acknowledge the problem. Accept that the blunt instrument of discounting doesn’t work and has to change.

Step 2: Evaluate your current discounting policy. (This assumes there is a policy.) Among the factors you want to examine here are:

  • are the discounts available essentially universally, for the asking, or for selected and targeted clients only?
  • are the discounts offered on everything you do or only in specially challenged practice areas or markets?
  • how do you let clients know a discount is, or might be, available?  Is it simply that they must ask, and it’s granted? Might there be a more intelligent way of investing the foregone revenue they represent?

At least in retail, the most effective discounts are (a) offered only to carefully selected customers; (b) disclosed in carefully limited ways, such as to “loyalty club” members; and (c) rigorously limited in time and applicability.

Step 3: Chart your path to recovery. Yes, “recovery” is precisely the word Booz & Co. uses. Repeat after me, “My name is _____, and I am a discounter.” (Just kidding; but the point is serious.)  You can’t change everything all at once, if only because you’ve trained clients to expect discounts (see above), but you can phase out the most damaging and indiscriminate offerings and try to channel the funds into rewarding your most valued clients.

Step 4: Track your progress. Don’t assume that because people nod gravely and promise to reform their ways that they will.  The temptation to engage in short-sighted behavior has not diminished simply because you’ve explained the world is changing.  Here’s some of the nitty-gritty on this (emphasis mine):

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