Most businesses resort to discounting as a way to beat the competition. Their logic is that if they do NOT discount their prices, their customers will go to their competitors and hence a loss of market share and the share of the customers’ wallet.
While this logical reasoning may sound true and good but in real life, this is a strategy that is doomed to fail for the following reasons:
Reason 1) If you require a Gross Profit Margin of 30% for every product that you sell, a 5% discount will require you to increase your Sales Volume by 20% just to stay-even. To suddenly increase your Sales Volume by another 20% is a huge task in any market conditions. In addition, the increased sales Volume will directly and indirectly increases your costs in terms of shipping costs, storage, administration, and insurance etc. However, most businesses especially the retailers, their discounts are usually in the range or 20% to 50% or even more. They simply do not know the impact their discount is doing to their business. They are simply discounting themselves out of business.
Reason 2) Discounting sends out a message to the market that you needed the money more than the goods and services that your are selling. It tells your existing customers as well as potential customers that your business is in need of cash and is somewhat not stable financially. And the majority will shun making any purchase with your business.
Reason 3) It tells your existing customers who have just bought from you before your discounting campaign that they had just been ripped off by you. This act actually destroys customer relationships and it does not build loyalty at all.
Reason 4) You are “training” your customers to focus their purchases on the price and NOT the value that your products or services offer. Eventually they will wait for your discounts before they make any purchase with you again. As such, they will “shop around” before they come to you for the lowest price.
Reason 5) You give your customers the impression that it is “cheap” to deal with you. Not a good impression.
While there are many other reasons, financial and otherwise, in this article, I will just stop at these 5 reasons that I believe are enough to discourage your from discounting your goods and services if that is what you have on your mind. Think again is what I would advise you or better still give me a call or an email for a non-obligatory discussion on your current needs and situation.
I am a firm believer that discounting is BAD for any business. However, I do use the discounting methodology in my consulting with my clients purely just to clear off those going-to-be obsolete inventory. This is the only time I would apply discount in a business setting.
Thank you for reading this article and I certainly hope you have gain some insights from reading it.
I can be reached at Victor@CrossbowConsultingGroup.com if you needed and further information.
Have a profitable quarter ahead.