January and February are the slowest months in the fast food industry. Those darned New Year’s resolutions about battling the bulge always take a bite out of the junk food market. Their response? To lure customers back to their old habits by offering 99 cent items.

Discounts seem to be here to stay as evidenced by the popularity of Groupon-type marketing tactics, but is discounting your products or services a good idea for you?

First let’s look at the psychology of an incentive starting with motivation. There are two types of motivation: intrinsic, the type which comes from the inside and extrinsic, the type which comes with a reward attached. You might think, “But rewards work!” And yes, in the short term, rewards often succeed in buying temporary compliance. Many studies, however, have shown that over the long term, students learn better without grades, people work harder without bonuses and addicts can recover successfully when they are motivated by their own internal commitment.

I have two questions I like to ask myself when I consider using an incentive: “What is it I want this person to do?” and the more important question, “What do I want their reason to be for doing it?” The answer to the second question always makes me reconsider dangling the proverbial carrot.

A friend of mine, who is an independent baker, learned a tough lesson when she signed up to offer a Groupon. To her initial excitement, 500 people bought her deal for ½ off a cake or two dozen cookies. She had 500 people who had never heard of her, calling her to redeem their Groupon. Many placed their order and never came to pick it up, resulting in many baked goods being thrown away. Others bought the deal once, and moved on to the next good thing. Out of those 500 people, only three ever placed an order again.

I asked her if the amount she spent in time and giving fifty percent off her product was worth getting three customers who might become regular. She said absolutely not, that the experience nearly put her out of business.

What went wrong?

When people are deciding with whom they want to do business, they will choose the business which satisfies their criteria in the following areas:

Quality

Innovation (what you bring that’s unique to the table)

Service

Price

Of course criteria, such as location may be considered in the equation, but generally these are the areas your customers are evaluating when choosing to do business with you, or someone else.

I asked my friend what aspect of her business she believed most of her customers valued: is it price, quality, innovation or service? She ranked quality as number one, and innovation a close second. Her answer was congruent with her practice of using organic, seasonal ingredients and offering vegan options which everyone finds scrumptious. Then, we discussed why using discounts attracts a market who values price above all else.

By using discounts to attract customers, she wasn’t attracting clients who valued quality and innovation more than they valued a cheap price tag.

It’s not to say that we don’t all enjoy saving money. However, if we look at the types of motivation, intrinsic and extrinsic, one type of  motivation begins to look much better than the other. The biggest problem I see with extrinsic motivators is that they actually erode your customer’s loyalty because they fail to help your customer develop an internal commitment to doing business with you when there’s no longer a payoff. In other words you may have to keep dangling that carrot. (See Punished by Rewards by Alfie Kohn)

Discounts can devalue your product or service in the mind of potential and existing customers.

I think it’s safe to say, that the regular fast food patron isn’t choosing the food for its quality, but more likely its price point and fast service. So I invite you to ask yourself, is your business the equivalent of a fast food operation within your industry? Do your customers value a low price above quality, innovation or service? Most clients to whom I pose this question say no.

If your customers’ top value isn’t price, then why use a marketing tactic which puts cost in the spotlight?

Let’s go back to the question, What do I want my prospect to do? Whether it’s “to try my bakery,” “sign up for my workshop” or “hire me to design a website,” remember to ask the question which explores the reasons you want your customers to do business with you. I am guessing they value the beautiful appearance and delicious flavor of the birthday cake you made. Perhaps they appreciate the actions they were inspired to take after attending your workshop. Or maybe they are grateful for the perfectly-matched clients who come their way after seeing the website you designed.

If someone asks why they should do business with you, you wouldn’t say, “Because I am going to give you such a deal!” Don’t let your marketing strategies send that message. I know you offer brilliant products or services, therefore I encourage you to use marketing strategies which illuminate the real reason folks should do business with you and leave the carrot dangling to those who want to attract the market segment which is always hungry for the latest and greatest deal.

It’s not too late to develop your 2012 marketing timeline. I can help you determine your customer’s values, evaluate where the channels of communication with your customers are flowing (and where they aren’t), brainstorm a wide variety of marketing strategies, organize them on a calendar so they actually happen, and even help you implement them through e-mail marketing, social networking, printed materials and signs. Together we can build marketing momentum.