Discount pricing is a standard marketing strategy.
Some businesses simply prefer to build a revenue model that completely depends on discounted goods and services.
If you’ve been regularly following certain stores that run regular discounts, you may notice that many of them raise the prices notably a couple of months before the discount in order to bridge the gap. That’s also common.
Usually, there are three popular models where discount pricing may come in handy:
- Selling expensive products or services that are always discounted (it’s a zero-sum game)
- Providing a discount for a solution that requires maintenance or additional work—increasing the lifetime value of a customer over time with the ongoing fees
- Getting rid of outdated products before a new season (popular in the clothing or footwear industry)
In some cases, discounted products may indeed be cheaper—even when excluding the third example above. Groupon-alike solutions are a good primer here.
A hotel chain may issue a bulk of rooms or packages during slow seasons. The ongoing costs for rental, cleaning, staff, and food are more or less the same. Slow seasons result in a lower revenue per customer—fewer customers booking rooms and high availability.
Offering an under-market fee would bridge the gap and bring some revenue for the chain without resulting in excessive higher fees (like staff overhead which is a flat cost).
It also depends on the margin. Sometimes, a business may get a deal from a factory or another vendor and thus be able to sell at a discounted price. It’s a good offer that doesn’t affect the profit.