Waiting for an improved bottom line after launching a discount scheme? Are you thinking “We will make up the numbers in volumes”? Well, you are in for a rude shock!
No I am not kidding , consider this – if your current profit margin is 25% and you offer a discount of 10%, you need to sell 67% more to earn the same profit. On the other hand if you increase your prices by 10%, you will manage the same profit even if you sell 29% less. So which is the smarter choice?
As a business owner you are in for the long haul and profits not just revenues. This blog helps you understand it is possible to work less but earn same income by selling and not discounting.
Why are discounts dangerous?
Giving discounts is easy but harmful to your brand. While selling without discounts may seem difficult, do consider the efforts required to sell 67% more! So here is why discounts don’t work for you.
- Show lack of confidence. When you offer something less than standard price, your prospect thinks something is wrong and that you don’t believe in your product. Confidence is a game changer and you’ve lost the sale if you lose confidence.
- Set an expectation. Once you lower your prices, the customer will expect it the next time as well or hold out till you offer another one. This is a bad precedent for business.
- Impact perceived value. Price and quality are not isolated in customers’ mind and deep discounts cause them to think quality has been lowered along with price. So it’s important to sell the value of the product and not the price.
- Discounts are deceptive. You think you are making more money when you are discounting but the price discount matrix shown here will soon disillusion you.
If not discounts then what?
Your marketing strategy should be aimed at acquiring the lifetime value of customer and not a single purchase. Discounting is wolf in sheep’s clothing as it often deceives you into believing it to be a profitable strategy. So here is what you should do.
Increase the value attached to your product. Offer something for a limited period which will not cost you more but the perceived value for customer will be much higher, for example brands like Moto, Pixel and Motorola are offering limited period discounts only on Amazon right now while iPhone X is offering introductory offers for limited period.
Offer a different option which is higher priced. The higher price works as an anchor and consumers feel they have made a rational decision to buy the lower priced product.
Sell on value, perceived and real and not on price. Your sales person should hold firm on your prices and not hesitate when buyer demands lower price. So move from price discounting to value add offers for example Shoppers Stop and Body Shop offer special previews for members only and send invites for events.
Use quality enhancers like new packaging, image-enhancing publicity events or higher advertising levels to maintain the value price quality equation for example FBB (Big Bazaar) is using top actors to enhance the perceived value of their clothes line.
Differentiate your brand and communicate it. What is the value you are promising your customer?
Points to ponder before you discount.
- Price is just one aspect that goes into buying decisions and customers are more likely to ask “do you understand my needs or problem and can you offer a solution? Can I trust you?
- Are you trying to clear your stock or build loyalty by rewarding the customer? If your motive is loyalty then perhaps member exclusive discount would make greater impact than common discount for all.
- Know your customers, their interests, priorities and what drives them.
- Analyze your potential customers’ demographic to understand if they are loss aversive or gain seeking to fine tune your marketing tactics.
It’s easy to get trapped into thinking discounting is a great solution to move your sales, unless you realize you are in business for profit and not revenue numbers.
The tips we share are a small part of what we do at our coaching sessions.
If you’d like to take the whole framework and install it in your business, then do drop an email at [email protected] with the subject line “Scale Session” and we’ll reach out to you with all the details quickly.
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