The Payoff Paradox: Why discounting is a bad idea
Today I’m excited to share one of my favorite little principles with you: The Payoff Paradox. It was an “ah ha” moment for me and I hope it will be for you too!
The concept is that sometimes a decision comes with a short-term benefit. But that short-term benefit is almost always connected to a long-term consequence. So, for instance, tomorrow morning my alarm will go off at 6:00am. And I’ve then got two options: I can either get up and go work out, or I can go back to sleep. Going back to sleep is a very tempting option on most mornings! But the problem is if I choose to go back to sleep day after day, the long-term consequence is a serious detriment to my health and energy. But, because the long-term consequences are cumulative in nature, we don’t often immediately recognize the connection and just enjoy the short-term benefit.
The alternative is I can choose a short-term consequence that’s connected to a long-term benefit. So, continuing with our example, the short-term consequence is that I have to get up early and go work out. And at the moment, that doesn’t feel too good. But the long-term benefit is I’m going to be healthier, have more energy, and live longer. Almost always, short-term benefits are tied to long-term consequences that we tend to ignore. Instead of ignoring those, we can choose to endure the short-term consequences because we see the potential for a long-term benefit. Choosing to endure the short-term consequence is the Paradox that makes the Payoff possible!!
There are so many things in life that work this way. Just think about the short-term consequences of having kids. But man are there long-term benefits! And that’s what makes it worth the short-term challenges associated with having kids.
The clearest example in business? Discounting. The short-term benefit to discounting is you sell more chicken sandwiches (insert your product name here!). But the long-term consequences are numerous: you undermine trust, people aren’t willing to pay full price anymore, and on and on it goes. A number of consequences can be mapped back to discounting, even though it has a clear and easy to see short-term benefit.
But because the consequences of discounting have more of a cumulative effect, you don’t necessarily connect the long term problems to the immediate benefits. You’re only focused on selling the sandwich TODAY. Believe me, I understand how that immediate gratification can be tempting!!
Rejecting something that comes with a clear short-term benefit like discounting is counterintuitive because we live in a world, especially for publicly traded businesses, that thinks in 90-day cycles. We tend to want that short-term benefit that pays off in the next 90 days. But ultimately, that doesn’t create what we really need: a win for the customer AND a win for the business. So, the better question is…do you want to be successful in the short run or for the long haul?
Apple is a great example. They had to endure short-term consequences as a result of not giving discounts in order to create the long-term benefit that no one even looks for a discount on their products. Apple has to compete against companies who are giving lots of discounts. So, they have to give up something in the short run when some customers who are very price sensitive go buy something else – something cheaper. What Apple has been willing to do is withstand that in order to get to the long-term benefit that ultimately people feel like their product, even though it’s more expensive, is a better value. Because the price is the same no matter where you buy their product, it has enabled them to create value and have customers look for value in other places…like the experience of buying in the apple store, the constant innovations, the packaging, the customer service, the knowledge and passion of the employees, the Genius Bar, the in-store classes and instruction to enhance the use and benefits of the product…on and on it goes. And because eventually the customer knows they can’t get that better-value product any cheaper, they stop using price as a criteria when choosing what to purchase.
We must be willing to endure the short-term consequence in order to obtain the long-term benefit. That is the Paradox…and that is the Payoff!! If you start to think about it that way, you can begin to use this paradox to your advantage in every area of your life – in marketing and otherwise!
One of things I’ve always loved about this paradox: Truett Cathy’s (the founder of Chick-fil-A) initials are STC. And this was always the way he would do things. He would always take the Short-Term Consequence in order to get to the long-term benefit.
When I think about principles that really worked well at Chick-fil-A, they’re almost always tied to taking a short-term consequence that will get us to a long-term benefit. Closed on Sunday is another great example. There’s a lot of short-term consequences to that. But now the organization is enjoying the long-term benefit.
To sum it all up, The Payoff Paradox is this: all of us want short-term benefits. But those are BOGO: buy one, get one free. For every short-term benefit you take, you get a free long-term consequence at no extra expense! But the good news is that long-term benefits are BOGO too. For every short-term consequence you take, you get a long-term benefit at no extra expense. And after all, while it is nice to get those short-term benefits…because we have to live in the short term…wouldn’t you rather have benefits that are realized in…and last for…the long term? Because we have to live in the long term too!!
Because I want to help YOU enjoy growth that lasts longer, I created my new digital course, Spark. In it, I share more about the principles that I learned during my time at Chick-fil-A and teach counterintuitive ways to build a thriving organization… including marketing alternatives to discounting!
As a special gift for you, I’m providing a session from Spark that talks about Building a Brand Strategy and how to create an emotional connection with your customers; something that may have some short-term consequences to gain that long-term benefit.
I hope you find this useful in transforming your company and culture. This is one example of the lessons and topics available in Spark. For more information about the course, visit sparkbydavidsalyers.com
I’d love to connect with you on social media, you can find me on these platforms:
Together, we can Spark a Revolution of brands more defined by meaning than money, brands that achieve success in a manner that redefines it.
Founder, Spark A Revolution