We live in a price-focused world. Everyone is out to get the best deal.
The bigger retail organisations spend big dollars on promoting their sales through the media and it would seem to the ordinary businessperson that this is the way to conduct business. "We'll make it up on the volume" you hear them say.
Do not be fooled by this - not at all. There are some good and legitimate reasons to discount, such as obsolete or seasonal stock or specific cash flow requirements. There should be specific cut-off points for these strategies.
Discounting impacts perceived quality
It might seem logical to discount during an economic downturn. You need to boost sales and attract new customers. Customers are tightening their belts and shopping around for the best price. But, is discounting the best option over the long-term?
During tough times, people like bargains but they also rely on quality and certainty. Price is an indication of quality. When price is discounted, there's a perception that the quality of the product is affected.
Customers searching for quality will choose the product or service that is a higher price. This is especially the case for luxury goods, which should never be discounted.
Don't count on discount
Discounting might help to boost sales and attract new customers in the short-term, but from a strategic perspective it can have a negative impact on your brand. It's important to consider the potential consequences of a discounting program:
- Discounting creates an expectation for cheap products and services.
- Discounting encourages customers to wait for discounts before making a purchase.
- Discounting creates a price war by forcing competitors to discount as well.
- Discounting cuts profit margins.
- It can be difficult to raise your prices when the economy recovers.
So instead of rushing into a discounting program, consider what other options are available to you. For example, bonus offers add value to the existing product rather than take value away.
Discounting and sales promotion can be a valuable marketing tool when used correctly but when used solely to increase sales it can devalue the brand. Remember, price is tied to perceived value. Discounting the price, could discount your brand.
"When everything seems to be going against you, remember that the airplane takes off against the wind, not with it" Henry Ford