You notice a leak in your roof and, with the best of intentions, apply duct tape as a quick fix. While it seems to work temporarily, the tape gives way during the next heavy rain, causing more damage than before.
We’ve learnt how we can create value by pricing, now we’re investigating the opposite: with some short term intervention, you can sabotage your long term success. First, let’s take a look at the basic discount types.
The choice between nominal discounts (e.g., "€10 off") and percentage discounts (e.g., "10% off") plays a crucial role in influencing customer perception and purchasing behavior. Each format has specific strengths and works best in different contexts. Let’s break it down.
Nominal discounts are effective when the absolute savings is significant or easy to visualize. These discounts feel larger for high prices than percentage, therefore customers focus on the concrete savings amount rather than the percentage.
For high-priced products or services, a nominal discount highlights the substantial savings, because the actual amount saved is more tangible and impressive.
"€500 off a €2,500 laptop" sounds more impactful than "20% off."
Customers can easily calculate the exact benefit without doing math.
Nominal discounts encourage customers to hit spending thresholds, like "Spend €100 and get €20 off." It drives higher average order values, as customers try to qualify for the discount.
Offer nominal discounts on bundle deals to make the total savings explicit (e.g., "Save €50 when you buy both items").
Percentage discounts are most effective when the relative savings is more compelling.
For inexpensive products, a percentage discount can make the savings feel more significant, because percentage discounts amplify the perceived value of savings when the absolute amount is small. "20% off a €10 item" sounds better than "Save €2."
Promoting a range of products with varying prices, percentage discounts are simpler: "20% off all items in the store" applies universally and feels inclusive. Customers perceive fairness, as everyone benefits proportionally.
You can also use percentage discounts to highlight ongoing value (e.g., "20% off your subscription forever").
Subscription models might require a huge commitment, so to ease this decision, the "first month free" promotion can help.
It can reduce the barrier to entry as many customers hesitate to subscribe due to the upfront cost, uncertainty about value, or fear of commitment. A free trial creates a risk-free experience, allowing customers to explore the service without feeling pressured to make an immediate financial decision. It gives customers time to experience the service's benefits, increasing the likelihood that they’ll perceive it as valuable.
A free month allows users to incorporate the service into their daily lives (e.g., using a fitness app or watching favorite shows). This builds a habit loop that’s hard to break once the trial ends.
The business rationale behind the promotion is Lifetime Value (LTV) vs. Cost. The cost of providing a free month is offset by the long-term revenue from paying subscribers who stay for months or years. It’s a cost-effective customer acquisition tool, especially for services with strong engagement and high lifetime value.
However, the first month free offer is not a silver bullet either. In the case of an internet service provider, the industry’s unique characteristics, such as high setup costs, long-term contracts, and ubiquitous demand for internet connectivity, make it a different scenario. Compared to a streaming service that you can cancel anytime, there is a binding contract to suit those characteristics, so one free month has less incentive in this scenario because the contract already locks in customer commitment.
Also, since nearly every household already has internet, acquiring new customers often involves switching costs (e.g., canceling a previous provider, returning equipment). A free month might not be compelling enough to justify the effort.
However, it can be the final gentle push for those who already are thinking of switching or are moving to another place.
To be fair, the internet service provider could offer the first-month-free model the way that the binding contract sets off only in the second month. This appeals to the commitment bias that once customers invest effort into installation and setup, they’re less likely to stop the service and switch providers.
Discounts have their role in the operation, and we’ve already seen some use cases where their effect gets derailed. But there is an even greater underlying risk.
As Tom Fishburne posted, Les Binet, group head of effectiveness at adam&eveDDB, cautions against ‘senseless’ price promotions.
Much of the spike in sales that brands see during a price promotion subsidises consumers who would have bought anyway — time-shifting or moving from other sales channels. No surprise that a huge portion of price promotions are unprofitable. “If you keep doing it, you increase your price sensitivity, reduce your pricing power and erode your margins.”
Agency pricing, particularly in industries like consulting, marketing, or design, often revolves around hourly invoicing to reflect the direct relationship between the work performed and the cost incurred. This approach provides transparency, allowing clients to see exactly how much time is spent on specific tasks or projects. Agencies invoice hourly because their services are highly customised and vary significantly depending on the scope, complexity, and demands of each project. By charging hourly rates, agencies ensure that clients pay for the actual effort and expertise invested, avoiding overcharging for simpler tasks or undercharging for more intensive work. This model also accounts for the variable nature of workloads, enabling agencies to remain flexible in handling diverse client needs while fairly compensating their team for the time and skills required.
However, industry specialists fight against this approach as it eviscerates professionals and places quantity over quality. The basic problem is that creative tasks cannot be defined properly as you cannot tell a creative professional to be creative in the afternoon on this Tuesday. Quality creative work needs to be let mature and ripened.
Creative tasks are inherently nonlinear—the process may involve bursts of inspiration, experimentation, and periods of reflection that cannot be neatly scheduled or quantified.
Charging by the hour can place undue pressure on professionals to prioritize efficiency over the thoughtful exploration necessary for high-quality outcomes. It risks commodifying creative work, reducing it to measurable units of time rather than recognising the unique value and impact of the final product.
This is why many industry specialists advocate for value-based pricing or project-based fees, where compensation reflects the deliverable's impact and the expertise required to achieve it, rather than the time spent. These alternative models shift the focus from "time equals money" to the intrinsic worth of the professional's contribution, fostering a healthier balance between quality, creativity, and fair compensation.
TheFutur explains it clearly. Let’s say you have a retainer for $100/hour at 20 hours / month. That’s $2000. The client sees it as time worked vs results. So if the retainer works 20+ hours on the project, it means you’re not getting paid enough. If they work -20 hours, the client thinks they’re paying too much. But with a subscription or a project fee, the client sees value over price, and will be satisfied if the value seems bigger for them than the paid price. No matter how many hours were spent on the project.
This example highlights how pricing can have an irreversible effect on quality and an entire industry that has its negative implications on both the industry and the customer sides. For the proper service, find the sustainable pricing.
