Product Launch

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E76: How NOT To Manage Product Pricing Discounts

Tesla has steeply discounted their vehicles which has created a PR backlash nightmare.

You need to be careful with how you handle product pricing discounts.  If you aren’t, you could create a PR nightmare like Tesla has recently.

Let’s talk about how they created this mess so you can avoid it.  Plus we’ll get into how you should manage it instead to avoid this situation altogether.

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Episode Transcript
Hey, Folks. Sean Here.

And today, what I want to talk about is

how NOT to manage price discounts for your product,

with an example provided by Tesla and the recent

discounts that they’ve provided and the PR nightmare that

that’s caused, especially in China.

So if you’re unfamiliar with this story,

Tesla has more recently been steeply discounting.

Several of the models that they offer all over

the world to the tune of thousands of dollars

in some markets, and in particular, customers that have

paid need for the tesla vehicles before these price

discounts went into place are very upset. Why?

Well, because the discounts are not applying to them

in any form of refund or anything like that.

So, as you can imagine, if you were one

of these people that purchased a tesla at its

previously higher price, in some markets, considerably higher price,

you probably wouldn’t be very happy to learn that

all of a sudden, they produced that price by

thousands of dollars, and it doesn’t apply to you.

Now, in certain areas of the world, in particular

in China, this has become a total PR.

Nightmare where their customers that have

paid that higher price have been

storming their stores and vandalizing them.

Because how Tesla has treated this situation and

the fact that they’re not offering them anything,

in fact, it all feels pretty poorly planned.

And the execution does as well.

So this is among some of the risk

that you can experience if you’re going to

start offering discounts for your product.

And that’s why I say it really

is important with how you manage it.

Because if you don’t, it can turn into a PR.

Nightmare like this one.

This is the last thing that you want to see. Right?

I understand that they’re trying to incentivize

selling more vehicles, but they didn’t execute

that plan well, especially in China.

Now I want to talk a little bit about

the difference in the markets as well, too, because

the Chinese market is different than the American market.

And what I mean by that is,

in China, they leverage a different model. In China.

They Have A Direct Sales model, which We

Don’t yet have here in The United States.

But it seems like things are

kind of pushing in that direction.

Although it’s undetermined when something like that

might apply in the United States.

But in China they have a direct sales

model, meaning that price transparency is very high.

So everyone could see where your

price is and where it’s been.

That means that you need to treat how you manage

your price differently in the Chinese market than you do

in the American market, where there’s a dealership network.

The dealership network is kind of like the

wholesale retail model, where the dealer, the manufacturers

provide the vehicles for a price to the

dealership, and then the dealership has some price

flexibility in terms of what they want to

charge from there based on market conditions.

And they can manage incentives and

all that type of stuff.

So American consumers are accustomed to there

being some of these incentives that come

and go, incentivizing them to purchase at

different times and things like that.

So the way you manage the process in

the American market should not be the same

as how you manage in the Chinese market.

And that appears to be what Tesla essentially has

done here, where they kind of just rolled out

the same strategy in both markets and no previous

customers are happy anywhere but in China.

They’re particularly upset because

it’s very, very uncommon.

So you really need to be careful how

you manage price discounts for your product.

In fact, I would really never would like to see

you offer price discounts, but if you are going to

do it, you really shouldn’t have to do it if

the value is high and the value is strong.

I think that’s really some of the underlying fundamental

issues that are going on here at Tesla.

But if you are going to manage it, you

need to make sure that you manage it well.

Otherwise you could create one of

these PR nightmares for yourself.

So I want to talk to you about how

you can manage this process much better than Tesla

has to avoid this PR nightmare that you might

experience yourself as well, too, if you want to

get creative with your pricing for your products.

And in particular, this applies when you’re talking about

discounting your product and how it applies with managing

relationships with your previous customers, who you should be

taken care of as well too, because they should

be brand ambassadors for you not going around telling

everybody about how they got shafted by you, which

is probably what these Tesla customers are going to

be doing. And it’s going to cause

untold brand and reputation damage.

So that is not worth it at any price.

But if you do want to get creative with

how you’re managing your pricing, in particular, you want

to offer discounts, but you want to do them

in a creative way, in a way that works

for everybody, you’ve got to get more creative with

how you manage your relationship with your previous customers.

Now, I’ve seen other product companies try to do this as

well, too, and it always creates a form of backlash.

So you have to expect that because people have

paid a higher price, then you’re all of a

sudden charging for the product right now.

So you need a story to be able to share

with them or something to provide for them that’s going

to make them feel okay with the situation, like grandfathering

them in for whatever they had paid previously.

Like, for example, if you wanted to offer

additional services or you wanted to switch to

a subscription model or whatever it is, however

you’re changing your pricing model, right?

If you want to do that, then you need to

manage the process with your existing customers in a different

way than you’re managing it for everybody else.

That’s completely new to your product.

That’s where you can make a clean break.

So whatever they’ve paid before, if that was

expected to include whatever features and upgrades you

were going to add to your product moving

forward, you should manage it that way.

So you have to bifurcate how you’re managing this basically

subset of customers in order to minimize the backlash that

you’re going to get from making these changes.

Now, everybody understands and expects there to be changes

to products and product companies along the way.

That’s something customers, for the most part, are

relatively familiar with, but they’re not looking for

you to take advantage of them.

That’s going to create all kinds of problems for

you and your company potentially for the foreseeable future

if you don’t manage this the right way.

So figure out how you can make essentially

both groups of customers as happy as possible.

You’re not going to make everyone happy,

but you need to offer them something.

You can’t just tell them that, no, you bought

then, and as such, you’re being penalized for it.

That’s really not how this should work.

And if you do that, I promise you, you’re

going to create a mess just like Tesla has.