Pros & Cons of Discounts: Is Discounting Right for Your Online Stores?
It’s Black Friday! And with Cyber Monday just around the corner, we know a lot of you may be on the fence about whether or not to jump on the bandwagon of discounting.
Did you know that compared to non-holiday months, November and December earn 30% more eCommerce revenue? But there are pitfalls.
I’m sure you’ve seen businesses that are constantly on a discount. After some time, the bright letters “SALE” and “50% Off” start to lose its effect. Of course you wouldn’t want to cheapen your brand by doing the same.
You want to reap the benefits of discounting while still upholding the value of your business.
Discounting is much like the “haha”s we encounter in messages. They help build rapport. But when overused can lose its meaning. In the case of discounts, it can even undercut your reputation, affecting your business majorly in the long run.
Before we dive into the things to consider when implementing discounts, below is a list of Pros and Cons to help you examine the possible outcomes of discounting.
Quick Way to Drive Sales:
There is an obvious reason why businesses use discounts. They’re effective!
Customers like a good deal for their money and it is a quick way to get your sales up.
Attract New Customers:
A worthwhile discount can get some heads turned. Especially for customers who are in the process of deciding to buying your product.
Clear Out Old Stock:
Have sluggish products from last season? Be gone with them by offering selective discounts so you won’t have a hold up!
Building a Relationship with Loyal Customers:
Its nice to be treated with perks and benefits. As a customer, if I'm rewarded beyond having a good product or service, I am more likely to have a better impression and overall experience. People like being recognized for their efforts and that is all the more true with loyal customers.
Inviting the Wrong Attention:
Discounts can attract customers who are simply driven by a good bargain rather than appreciate what your business has to offer. It can also set a bad precedence for the future.
Shifting Focus on Price:
Like the point just mentioned, your tactic could convert the emphasis on price, leading you down a cutthroat journey at achieving the cheapest prices. What's worse is this may not only apply to new customers but also existing ones.
Lowered Perceived Value:
We tend to feel uncomfortable when something seems too good to be true. With enormous discounts, we’re suspicious that quality may have suffered or that it wasn’t worth the price to begin with.
Cut in Profit:
Just as the headline suggests, the most obvious disadvantage is the cut in what you could have been making.
The Pros and Cons of discounting are really just a flip of the coin. Depending on how the tactic is implemented, results can be poles apart.
What are your experiences? Share with us your story in the comments below.
Like every good strategic move, it is always wise to properly evaluate the current situation before jumping into action. We’ve identified three key aspects to note in order to determine the right solution for your business.
Goal & Reasoning
Why? The age old question that dates back to when we were kids. It’s crucial that you have a clear idea of what it is that you are trying to achieve in order to choose the right strategy.
Someone looking to clear stock would take a very different approach to someone who is trying to build loyalty by rewarding their customer. Determining your focus and what the “issue” is that you are trying to address can impact the results immensely.
Think about it. As a loyal customer, a member exclusive discount would make me feel way more valued than a general store discount that is accessible to everyone. By clarifying your motive, you make it easier to close in on the best solution for you.
It would be foolish not to know the people who are making your business possible. Be aware and evaluate your customer base. Knowing their priorities and what drives them can help you perfect your game.
To have a better grasp of your customers, check out our [previous article](https://blog.aftership.com/3-steps-to-start-using-data-to-grow-sales/" target="_blank) on how to use data to maximize your sales!
Note also the potential clients you are trying to tackle. What is their demographic? Are they more loss aversive or gain seeking? Understanding these factors can help make your tactic more effective.
Nature of Your Product
Having a clear understanding of your product is business 101. Is what you’re selling bound by seasons, a one off sales or perhaps a continuous service sold through subscriptions?
A major concern of discounting is the possibility of devaluing the brand. But if you hear that there is a new iPhone coming out, you naturally expect the price for the current iPhone to drop without thinking that Apple is cheap.
Unless you are discounting by an insane amount, there is generally little ramification to discounting when it is expected.
When done correctly, discounts can be a great way to drive sales and widen your customer base. It’s important to note however, that it is a short term tactic rather than a maneuver for the long run.
Relying too much on discounts to gain your revenues can ultimately hurt your business. But once you’ve properly assessed the various factors, try be creative in your solutions. Make discounts feel like a bonus to the consumer rather than something they’d take for granted.
If you've enjoyed this article, don't forget to check out [Part 2](https://blog.aftership.com/focused-strategy-discount-tactics/" target="_blank) of our discount series for a closer look on the different approaches.
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