by Sarah Beth Jones
August 03, 2016
by Sarah Beth Jones
August 03, 2016
Offering discounts can be a great tool to drive conversion. However, if used poorly you can do significant damage to your brand and lose profits. In this post, we’ll explore the pros and cons of discounts and coupons, and what you should consider before using them in your sales strategy.
Why a company should offer discounts
Offering potential customers discounts on purchases is a way to quickly draw people in. Anytime you tell a customer they can save money, you’re likely to gauge their attention. Not only can discounts help your consumers, they can also drive the success of your business. From increased sales to improved reputation, when done properly offers have the potential to create a new group of loyal customers.
However, to determine what kind of discount strategy works best for your brand, you should choose a goal for every offer. Start small and measure the results independently.
For example, coupon codes online can be more effective than simply running a sale, because consumers feel like they’re privy to a discount other shoppers aren’t aware of.
Unfortunately, discount scaling doesn’t work in the same way. Discount pricing isn’t always viable for service-based businesses. Services aren’t scalable in the same way as products.
Discounts vs. Coupons
Implementing offers such as coupons and service discounts are very easy to create and monitor. Depending on the type of business you’re in, online store offers can help drive customer acquisition and customer loyalty.
If you want to position yourself as a higher end brand or if you have slimmer margins, you may want to consider sticking to customer loyalty type offers rather than weekly sales. This helps increase the perceived value of your product and increase your average order value.
One of the biggest problems with discounting is cutting into your bottom line. If you’re dealing with products that have increased costs to cover overhead and profit, then you have the latitude to drop prices if you need to the move products quickly. However, those products with minimal markup can reduce profits and even drop into the red due to their overhead costs.
Most businesses have weekly, monthly, quarterly, and yearly sales targets. Given the seasonal fluctuations in consumer buying behavior, you can curb lean seasons by offering discounts. This way, you are able to meet your targeted sales goals within every period regardless of what you’re forecasted to sell.
However, it’s important to consider if price is your only competitive advantage. The thing to keep in mind is that offering discounts is a form of selling on price. When you offer a discount, you are taking the focus from the value you provide and placing it squarely on your price.
The Bigger Picture
To maintain higher prices, you have to instead be adept at selling value. Discounts erode your ability to do that. Any reduction in prices can damage your price integrity. Later, getting the same customer to stop thinking about price and re-focus on value might be difficult.
Not only that, studies show that discounts actually reduce the effectiveness of whatever is being discounted. In a buyer’s mind, the discounted offering literally does not perform as well as it did at full price.
Whether or not to use a discount pricing strategy is a decision that must be balanced based on the potential outcomes of each individual circumstance. If you can discount without reducing consumer perception on the understood value of the product or service, then it makes sense.
However, if you’re compromising quality for the sake of a reduced price point, then you may want to reconsider.
Overall, there are several types of discounts and offers brands have at their disposal. The key is finding which one works best for your brand strategy and how that can best drive your sales performance.
This article was written by Sarah Beth Jones from Business2Community and was legally licensed through the NewsCred publisher network.