The Danger of Discounting

If I had earned my MBA from the Jack Welch Management Institute, I wouldn't be very happy with the school's latest promotion.

An email arrived in my inbox a few weeks ago, and the headline immediately caught my attention: "Exclusive Jack Welch Online MBA Savings for Perkopolis Members!"

Yikes.

There's a simple concept in marketing called "Price-Quality Association": many consumers feel high prices connote high quality and low prices connote low quality.

The key word in that last sentence is "feel"; it certainly isn't always true. You can absolutely overpay for a rundown house or get a great price on a well-built home, for example. The price you pay for something isn't always reflective of its quality.

But if you were going skydiving, and I said, "we're having a sale on parachutes today, and you can get this one here for only $1", would you take the bargain parachute or willingly pay more for one that wasn't on sale? That's the concept of "price-quality association" at work.

Now apply that concept to the idea of an MBA program offering "savings".

Like I said, yikes.

To be clear, I'm not providing any commentary whatsoever on the quality of a degree from the Jack Welch Institute (I'm sure it's fine), and I'm certainly not objecting to making the cost of an MBA degree more accessible (that's a good thing).

I'm taking issue with the positioning used in this ill-conceived promotion: the very fact that "savings" is on offer instantly and unnecessarily devalues the Jack Welch Institute's brand.

Can you imagine Harvard or Stanford working with Perkopolis on a similar promotion?

I can't.

In fact, those institutions are famously known for being very, very, expensive.

Unapologetically so, in fact, because top-tier universities use an offshoot of the "price-quality association" concept called "prestige pricing": sometimes you charge outrageous amounts precisely because it makes people think what you're selling is better.

Does it actually cost more to deliver a Harvard education than it does an MBA from the Jack Welch Institute? Almost certainly it does: Harvard has more expensive professors and a more expansive campus to maintain to name just two reasons why Harvard's expenses might be higher. But does it cost three times more? Unlikely... yet Harvard's tuition is more than three times the cost of an MBA from the Jack Welch Institute. Why? Prestige pricing!

To be completely fair to the Jack Welch Institute, the body of the email does go on to say the discount comes in the form of tuition assistance, which is a much more appropriate way to make the cost of acquiring an MBA more affordable.

Unfortunately, that line appears in the bottom third of the email, after that atrocious headline and a prominent white call-out box that reads "Apply today to Save 10% of More." And by the time you get to the bottom of the email (if you ever get there), the positioning damage has already been done.

The danger of discounting your goods and services extends far beyond a loss of revenue: it affects the positioning of your brand.

Be careful about when, where, what, and how you choose to discount.

P.S. When I worked at Starbucks many years ago, I was told we were never allowed to use the word "free" in our marketing communications: the word "free" would devalue the brand. If we were going to give something to consumers at no cost, it was to be "complimentary". There are ways to offer deals without devaluing your brand if you're smart about it.