As a small business with no marketing department, there is an immediate urge to discount when times are tough. This may have short-term advantages but in the end it will be causing you much bigger problems.
Can you afford to make price your main selling point?
Here’s five really good reasons why I believe you should not be discounting:
The big boys have the money to outlast you
It hurts any small business owner to see big retailers or big business in general coming out with a heavy schedule of advertising, promoting discounts and undercutting your products. But trying to combat this by matching the discounts is really dangerous because the chances are, they have bigger margins because of their buying power and they have more advertising dollars to promote their sales.
Consumers come to expect it all the time
In a frugal environment we as consumers are more than often researching online to find the best prices, or even visiting various stores to assess prices before purchasing. So it goes without saying, once we find the cheapest price for something then we will continue to go back. The only thing we’re loyal to at this stage is price. Once that price goes back up, then it’s back on, we’re searching again. This means you will have to find something else to keep them coming back otherwise they’re gone, or continue discounting.
We’re becoming immune to discounts
There was a time and it wasn’t that long ago when 10% or 20% off actually meant something. But now, anything less than 20% isn’t that special and to be honest 10% off or less is just embarrassing (maybe 10% off a BMW). This perception will not be changing overnight and worst case, it might continue so whilst you’re happy to discount 25%, have you got the margins to go to 40% and further?
It devalues your product and your service
Unfortunately we tend to perceive value by cost. Everything in a discount store is cheap and nasty and basically very poor quality. Is this really the case? Do we know for fact? No. But because it’s all cheap that’s the perception. So there is every chance that once you’ve been discounting for a an extended period of time, consumers will start to devalue your products and your service. This affects your brand and your business.
It cuts your margins and your profits
Business is tough. The overheads are increasing, consumers are cutting their spending. Can you afford to cut your margins in an environment like this? Obviously many see no other way. If you discount 50% then think about it, you’re going to need to sell twice as many units.
Of course it’s real easy to turn around and say don’t do it but you need a solution right? Please check out some of my other posts for some ideas or if you prefer to just keep discounting then hopefully these ideas should help:
- One Day Only Sales - Identify what is your slowest trading day and introduce discounts for that day each week. It will encourage the people looking for bargains to come in during the week and it will ensure your margins are still healthy on your busiest days.
- Encourage Loyalty - Ask for your customers mobile numbers to run small SMS campaigns, get their email address so you can send them an email newsletter, ask them to ‘Like’ you on Facebook. The point is, it’s OK to give a customer a discount if you know you’ll see them again and again. So get their details and provide exclusive discounts, it encourages loyalty.
- Minimum Spend - Only apply discounts on a minimum spend to ensure that you are doing what you can to increase revenue.
- Offer a Freebie - Is it possible in your situation to give away a freebie instead of a discount? At the end of the day, the consumer is looking for value. If you can source cheap, relevant gifts that perceive value this may be a better strategy. Perhaps this might even be branded to help encourage them coming back. For example, if you’re running 25% off and someone comes in for a $100 item, you’ve essentially handed them $25 in discounts but what if it was a $10 gift? As long as it weighs up in the customer’s mind.
Discounting has a place in any marketing strategy, but it can be dangerous and it should not be done hastily. Think about some of these options I’ve noted and be creative. You will be much better off if you do not compete for a customer based purely on price.
UPDATE: Here’s further support if I couldn’t convince you - ‘Don’t market based on price: it’s the biggest mistake you can make says marketing expert‘