Knock Down The Price, Knock Down The Value. Are Discounts Bad For Business?

 

Sales, discounts, knock-offs, rebates—it’s something we see businesses do all the time to promote their products. There are even entire business models built on the concept of discounting price (Honey, Groupon, even brick and mortars like TJ Maxx and Marshalls). 

With a discount on every corner, consumers are trained to only look for, and more importantly buy, what’s on sale. We’re all guilty of it. How many times have you gone to your favorite retail site and only looked at the products in the sales tab?

It all sounds great, doesn’t it: Your customer scores a sweet deal, you get a pat on the back knowing you’ve made your customer happy. But are discounts bad for business? If you’re not careful, discounting products for your small business could be dangerous. 

We’re All Suckers For Discounts

Discounts are often used to attract new customers or promote a brand right out of the gate. “Hey honey, there’s 15% off this Italian restaurant down the street. I didn’t even know this place existed.” And there they go, off to that Italian restaurant for dinner.

Another common reason a business might find themselves using discounts is when they’re in a sales rut, struggling to bring in enough revenue to keep themselves afloat. A price decrease is usually the first solution they latch onto but have they factored in how much money they’ll be losing over time from those discounted rates? 

Are Discounts Bad For Business

While discounts can be a great short-term strategy for temporary woes, in the long-term they could potentially hurt your business. Here’s how you can get in a wishy-washy situation when thinking that the next level of success is offering discounts to your customers:

  1. You’re unaware that in the psychology of discounts, cheaper prices cheapen the perception of value.
  2. You’ve wrongly assumed that price is the only factor consumers are using to determine if they want to make a purchase.

Price is actually the weakest characteristic of your product. Sure, you might find the deal-seekers walking through your door, but what about the valuable, loyal customers? You should be focusing on something much more important than money. Before you’re quick to knock the cost, consider whether you can amp up or better promote your value instead. 

Are all discounts bad for business? Of course, there are different pros and cons to discounts, just like there are pros and cons to eating cake for dinner every day. What you have to keep in mind are the effects that discounts have on customers and what those discounts are doing to the overall livelihood of your business. 

Here are some common discount-giving hurdles to be aware of.

You Wrongly Believe You Can Make Up for the Loss Somewhere Else

There’s a reason behind the price you originally set—it’s based on the value of your product, your location, your audience, and is a number that will set you up for success. 

But to put it simply, a discount is a loss. You’re knocking down the original price of your product for whatever the reason might be, and you’re assuming that you can make up for that loss somewhere else. How do you intend to make it up? Outsourcing production, using lower-quality materials, providing lower quality customer service? 

You never want customers to be more happy about a discount than they are about the actual product, especially if you end up cutting corners and the value is not near what they had expected. 

If the value is sub-par and not what the consumer expected, they will remember. They won’t remember the super deal you gave them; they’ll just remember how disappointed they were in your product (and you’ll remember that super deal when your wallet starts feeling super light).

Unfortunately, consumers are much more vocal about things they don’t like than what they do like. You might see a few bad reviews coming your way after this scenario, which we all know isn’t good for future sales. Consumers care about what others are saying.

You Slice The Price But Come Out Looking Insecure 

You know your products are awesome, right? That’s obviously one of the reasons you built an entire business around them. So ask yourself the question again: are discounts bad for business? Then look at it this way: does apologizing for your product look bad for your business? Probably so.

The concept behind consumer psychology and pricing goes like this: If a business has low prices, it means they don’t think their own products are worth more than they’re advertising. If a business’s prices are through the roof, their products must be badass.

You are completely devaluing your products with low prices, sales, and discounts. Those price cuts look like an apology for charging too much. Slicing the price will downplay your quality and your reputation. 

So, are you confident in your product? Do you believe in its value? If you don’t stand by the value of your product, then why should your customers?

All brand loyalty starts with customers trusting your quality and feeling confident that they can rely on your products. 

You Find That Your Discounts Make You Look Desperate

You know those girls from high school that did anything to get attention? They fished for compliments, overexaggerated about this and that, and were too promiscuous for anyone’s good. Desperate. How did they turn out? Probably not as well as the smart, confident, level-headed girl eventually did.

Let’s look at this concept from a business perspective. What comes to mind when you think of authenticity in sales? Probably an awesome company that everyone talks about because of their giving heart and quality products. Now, what comes to mind when you think of a desperate company? Low prices, low quality, impersonal? 

Discounts can come off as a very desperate move if you’re constantly offering them or lowering your prices for the wrong reasons. Competitors and seasoned customers pick up on this. Your prices are low, that must mean you’re desperate for a customer’s money or are desperate to beat the price of a competitor.

First of all, if a consumer feels like a company is being desperate with their sales strategies, they’re not going to buy–vibes are real folks. And when competitors see this they could lower their own prices even more than you did to stay in the game, which could put you in a pickle.

Instead of looking desperate, focus on the value that differentiates your product from competitors and then market the hell out of it.

They’re Not All Bad: When To Use Discounts 

Not all discounts are bad for business, just like eating cake for dinner once in a while won’t cause harmful effects on your health. With the right strategy, discounts can boost positivity and help your business thrive.

Here are 5 ways you can offer discounts and earn a positive response.

1. Free Shipping

Hello … Amazon Prime! We’re all suckered in when it comes to free shipping. Taking the cost of shipping out of the mix means consumers are more likely to buy and less likely to abandon their online carts.

Be careful though, don’t let the costs that come along with free shipping get out of hand. Try offering free shipping only when a customer spends a certain amount. Or restrict your free shipping offer to only specific locations.

2. Discourage Cart Abandonment

Every consumer who shops online has abandoned their online cart a time or two. This sucks for businesses and it might even suck for consumers too if they forgot about all of the awesome stuff they wanted to buy.

Give them the incentive to come back and make a purchase. A good way to do this is through email marketing and a small discount. If a cart has been abandoned, send that consumer a reminder email of what they left behind and offer them a small percentage off of whatever they left in their cart. This experience feels more intimate than a big sales banner flashing across your homepage and makes the customer feel like they’re in on something exclusive. At this point, you’ve not only increased your chances of making a sale, but you’ve also earned some serious customer service bonus points.

3. Sell In Bundles

Many single products come in bundles with other products. A company who makes skincare products can sell you one thing, but they’ll encourage you to buy two, three, four, five products together because each product should be used in conjunction with one another. Whether it’s the truth or not, consumers fall for buying five products instead of one all the time, and it has to do with more than just believing they work better together–it usually has to do with a discount.

When you sell products that complement each other or are often bought simultaneously, bundling them together and offering that set at a discounted rate encourages customers to buy more than they might’ve originally intended.

4. Prepaid Discounts

Have you ever been so excited for a product to launch that you pre-purchase it even though you’ll have to wait sometime before you receive it? This is a marketing strategy, and a good one.

Many companies offer discounted rates for products that aren’t ready in order to tempt consumers to purchase. When customers prepay for something, it builds cashflow for your brand, meaning you can use that money to purchase additional inventory, supplies, or make other investments.

5. Buy In Large Quantities 

Whether you’re a Doomsday Prepper or are just someone interested in only having to make purchases every so often, buying in bulk might be a smart move. Offering products in large quantities can also be great for business if you’re interested in encouraging buyers to purchase in bulk.

Offering discounts is a great way to encourage volume purchases. When you offer a bulk discount, customers end up paying less per product, but they buy a larger amount and end up spending more money in one sitting. This discount strategy is great for companies who want to increase their average cost per order or are trying to clear out inventory quickly.

If Not Discounts, Then What Do You Do? 

Yep, discounts can be good, discounts can be bad. How about we give you some sales strategies that don’t include discounts too, just to be safe.  

Here’s how to not give out discounts and still make money:

1. Hype Up Your Value 

Value is what it’s all about. People want authenticity and quality when they buy from your brand. Whether that means proving your value within a proposal or letting them see the value through reviews, give it to them.

2. Show How Well Your Product Works 

You’ve seen brand videos online that show you how to use a specific product that you’re considering purchasing. Hell, these types of things don’t necessarily have to even come from your brand anymore. Plenty of buyers post their own YouTube videos reviewing products. Either or, making sure a consumer knows how to use your product will persuade them to purchase it.

3. Remember That Confidence Sells  

This goes back to the desperate girl example. The girl with confidence and authenticity made it a lot further with people than the desperate girl seeking attention. If you have confidence that your product is worth every penny, your customers will find themselves thinking the same thing. Stand tall and stand by your products.

Start With A Strategy

Are discounts bad for business? Only if you use them poorly. There are certainly discounts that can break the bank or destroy the confidence your audience has in your brand. But if you’re conscious of how you’re using discounts, you could find yourself succeeding. No matter what decisions you decide to make for your business, make sure it’s all backed by a solid strategy. 

Need help identifying your value and crafting a strategy around it? A conversation might help. Buy Us a Beer and let’s get to talking.