Many companies offer lower, introductory pricing to grow their client base. But is this a good idea? That turns out to be a more difficult question than it may seem to be.

What happens to your brand when you attract new customers by giving them a lower price as an incentive to sign-on? In marketing, we refer to this as a loss leader. The idea behind a loss leader is that, by losing something up front, you will gain something more valuable in the longer term. But is that really what happens?

We’ve all seen this strategy used in our everyday lives. The companies that primarily do it are in industries where subscription services are offered. This includes warehouse stores (e.g., Costco and Sam’s Club), publications, online news and media organizations, entertainment companies (e.g., cable and streaming services), and wireless carriers. These companies offer an introductory rate that is below their lowest tier of service for existing customers, but there is a limit to the amount of time the rate is in effect.

This strategy is typically used when a company wants to attract a lot of new customers, and it does that. But, as the cable and wireless industry has shown us, it creates a customer loyal to the price and causes a higher customer churn rate. That has an impact on your company’s longer-term growth and scalability, but also impacts your overall brand.

Here are just five of the ways this strategy can damage your brand:

1. It tells new customers that you probably are not going to provide a high–quality experience
2. It alienates loyal customers, making them feel less valued by you
3. It does not build a relationship with the customer based on the brand’s value
4. It costs more in the long run because acquiring a new customer is more costly than keeping an existing one
5. When loyal customers leave, you need to bring in more new customers (at the lower price) just to cover the revenue lost

How the discounts are marketed and advertised can make it appear that you are desperate to bring in new business. Is this a bad strategy all the time? No, but like any strategy, your specific circumstances need to be considered before choosing it. It has worked for companies with subscription or membership-based offerings to varying degrees. But it has also reduced their loyal customer base.

Loyalty for most of these companies is dependent on how long the introductory contract rate is. It may create customer loyalty, which is driven by pricing and discounts, but it works against building brand loyalty, which is deeper and based on experience and perception. Churn rates ae expected to be high in most of the organizations, and they accept that as a “cost of doing business.”

Most companies offering these initial discounts will simply extend a discount to any customer who complains and calls to cancel their membership or subscription. This is a well-known pattern with Sirius XM. Their subscribers are aware of the process for maintaining a rate without an increase, but even Sirius has begun to reduce access with lower renewal rates. That may be due to less tolerance to subscriber exits.

Once you offer these discounts, this may become a strategy you are stuck with, like it or not. Just ask the cable and wireless industry. While larger companies can afford the costs of high customer churn and lost loyalty, smaller and medium size companies cannot. There are other ways to attract new customers without losing a lot of the existing customer base and without offering deep discounts. These are typically better for the smaller companies.

What’s the best way for you to attract new business without damaging your brand? Let’s chat about it. The call is free.