Price discounting has become the crack cocaine of business. A brief high is followed by devastating effects on both revenue and profits. The addiction starts when managers decide to use price discounts to hit revenue targets. They assume it is only temporary, that price discounting is a quick fix to a small problem. Soon that quick fix becomes a major element of business strategy. Eventually discounting becomes the tool of first resort to fight the effects of a market downturn, intense competition, and increased sophistication of buyers.
The real problem is that over time, the quick fix of discounting becomes so ingrained that managers are incapable of kicking the habit. They believe that discounting is a necessary evil–that theirs is a unique and tough business where price discounting is the real test of the abilities of seasoned managers. This is when discounting causes managers to lose sight of what’s really at stake: how customers value a firm’s products and services.