You’re the Boss Blog: YogaFit Tries to Escape the Discount Trap

She Owns It

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Suzanne DeChillo/The New York Times Beth Shaw: “We’ve undervalued ourselves.”

At the last She Owns It business group meeting, Beth Shaw, who owns YogaFit, started the discussion by sharing some painful lessons she has learned from discounting her company’s yoga teacher training.

“We have been running so many different discount codes, many of which have no expiration date, that we had people using the same code for multiple trainings when they shouldn’t have,” she said. “The customer service team is using those discounts as a way to make the sale, as opposed to focusing on the quality of our service, and so it’s a huge problem right now.” But with the help of a sales consultant who pointed out the dangers of indiscriminate discounting, she is devising solutions. Effective June 30, the open-ended discounts will end, Ms. Shaw said.

She said she had discovered that some of YogaFit’s training courses were run in a way that left the company no possibility of making a profit. “You can’t stay in business like that,” she added. When she reviewed what customers paid for her training, factoring in the discount codes, she said she found YogaFit’s offerings were “ridiculously underpriced.”

To fix the problem, she plans to assess the real costs of running YogaFit’s training and price it accordingly — steps, she concedes, she ideally would have taken sooner. But she said learning how to build a business has been an evolving process. Additionally, her customer-service team will need to be educated.

Susan Parker, who owns a dress manufacturer, Bari Jay, wondered whether simply ending the open-ended discounts on June 30 might solve the problem. “I assume every training is slightly different?” she asked.

Yes, Ms. Shaw said.

Ms. Parker said Ms. Shaw might have a bigger problem if she were selling, for example, a dress with a price that suddenly went from $100 to $120. She said Ms. Shaw is selling more of an experience, and may wipe the slate clean by ending the discounts.

Not necessarily, Ms. Shaw said, noting that the company does a lot of repeat business. “We have trained our customers in a bad way,” she said. “A lot of people were taking advantage of those discount codes.”

“How did you price these originally?” asked Alexandra Mayzler, who owns Thinking Caps Group.

Ms. Shaw said she looked at comparable offerings and “kind of undercut.” She went on to describe YogaFit’s product as unique because the company provides training across the country and internationally. This gives customers the chance to continue their training with YogaFit even when they move or travel.

“What’s the purpose of undercutting the competition?” asked Jessica Johnson, who owns Johnson Security Bureau.

“That’s a good question,” Ms. Shaw said. “I think we’ve undervalued ourselves dramatically.”

“I don’t have that problem — most of the time,” Ms. Johnson said. Sometimes, she said, “People expect me to have lower rates because they’re like, ‘Oh, you’re small, you’re a woman, you’re a minority, you’re in the ‘hood.’” She said prospects were often surprised to learn her prices. “I had a potential client say, ‘Well, I can get that for $14.’” Her standard response? “If you can get it for $14, get it for $14. And then when that doesn’t work out, call me back.”

Ms. Johnson said potential clients even approach her by stating they are unhappy with their current security firm and wonder if Johnson Security can give them a better price. In fact, this happened just last month. “I’m looking at the guy, like, ‘Really? I’m not going to match those numbers,’” she said.

“Because you get what you pay for,” said Deirdre Lord, who owns the Megawatt Hour, an energy start-up.

“Exactly,” Ms. Johnson said.

Ms. Mayzler said she had had similar experiences with prospective clients who told her they could get the same service for less. “If you think it’s the same service, then maybe we’re not the right fit for you,” she said she told them.

“It’s one thing to negotiate for better rates, but then it’s another thing when potential clients or clients try to use that as leverage and shop just the price,” Ms. Johnson said. “There are competitors that will take the business at any cost — even if it’s at a loss. It sends the wrong message.”

Ms. Shaw agreed: “When you draw a line in the sand, it’s funny how many people will actually come to that line and come over it, but you have to hold strong.”

In future posts, the owners will discuss the challenges of pricing a newly created product or service.

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Article source: http://boss.blogs.nytimes.com/2013/05/13/yogafit-tries-to-escape-the-discount-trap/?partner=rss&emc=rss