When Should You Offer a Discount?
When it comes to business, there is always the temptation to offer a discount. There are numerous reasons why some businesses would or should, offer a discount. In this article, we will look at these reasons and why not to host a discount sale for your business.
When Discounts are a Good Idea
Here are some common reasons why you would want to create a discount for your business.
1. To Move Excess Stock
When it comes to stock, you might have excess in some areas. For example, in January, you might have an excess amount of Christmas or New Year products. Keeping these in your storage is going to cost your business with a limited amount of sales. In addition, what was popular in the past holiday season might not be in the future.
Therefore, you can do a sale to get rid of excess stock.
2. To Attract New Customers
One goal for most businesses is to use a discount to attract new customers. It can be very lucrative, as long as the discount is indicated to the customers. Discounts can also help you spread the news to others through your existing customers with word-of-mouth marketing.
However, you have to be careful, as there can also be some negatives about offering discounts that can be more long-lasting.
3. Drive Higher Sales
When sales are down, and you’re struggling with cash flow, then driving sales might be in the best interests of the business. Therefore, attracting customers with a sale can be important. It can help get funds when you need to put them into other areas, such as marketing and product development.
4. Improves Reputation with Specific Audiences
When you’re trying to reach a specific audience, your discounts might be able to help you. For example, when it comes to the new school year or school term, this is a great time to target parents for back-to-school items. It also helps you build a strong reputation and trust with that audience because it shows that you realize this time is going to be very expensive, and you’re offering a cheaper time during this period.
5. Create Demand for Specific Products/Services
When launching a new product or service, sometimes demand can be at its lowest. This could partly be due to a lack of education about the product or service, or even your brand. Offering a discount at the beginning of the lifecycle of the product allows for early adopters to be rewarded. It also improves initial cash flow issues, which can help you improve your business’ chances of survival.
Why Discounts Are a Bad Idea
Discounts aren’t always a positive influence on your business. There can be some issues that can cause significant long-term challenges for your business. These might include some of the following issues.
1. They Reduce the Perceived Value of a Good/Service
Customers aren’t stupid. They know you’re not going to sell a product at a reduced rate where you can’t make money for your business. So when you put a product on offer, it indicates a different value of the product or service. Therefore, in the future, customers might not be willing to pay the full price.
2. Projects a Lack of Confidence in the Product
When you offer a discount for no reason (no end of holiday, special event, etc.) it tends to signal that you have no confidence in the product. Therefore, customers start to distrust the product. Is it worth the money that you’re asking for? Or is the product not good enough for sale? In addition to causing a lack of product confidence, it might also cause an increase in product returns reducing your cash flow.
3. Creates a Precedence for Sales
When you offer one sale, you start to set a precedent for sales to happen often. This can lead to a lack of revenue when no sales are running and an excess of sales when there are sales at your business. For some businesses, this is a business model they’ve grown used to and cannot survive without it. But it makes it hard to survive, as they have to continue to innovate and market sales.
4. Creates Distrust Between Customers and the Company
Sales can sometimes become a trust factor. In the UK, the reported sales prices have caused significant issues, with some consumer goods pointing out nefarious tactics of some large retailers to put up prices only to ‘reduce’ them in a sale. Therefore, some customers see sales as a way of tricking them into purchasing and accusing the companies of foul play. This is something that you don’t want.
5. Can Slow Down Sales During Normal Price Times
You don’t want a reduction in demand during normal pricing periods. You would expect more activity during the sales periods, but you don’t want to reduce demand during other periods, as this can be a problem. Therefore, you need to be confident of demand during other times.
6. Significantly Cuts into Profits
While profit is not the only statistic to measure, it should mostly take a back seat to cash flow, as sales do cut into profits. Therefore, you have to consider what level of cuts you want to make and can survive with.
Final Word: When Should You Offer a Discount?
There is no definitive when and why to offer a discount. However, certain signposts can help you determine when you should offer a discount and when not. But it is about using your best judgment, making sure that your business gets the best results from the discounts. But there are also other ways that you can gain sales, one of these is building trust by learning how to incorporate your business.