As competition heats up, some businesses are relying more and more on discounting to generate sales.
In the short term, discounting can be effective in getting customers to try a new product, but small business owners cannot count on this tactic to achieve long term sales gains.
Discounting does not build loyalty. Its only purpose is to drive customers into a business. Its nature is short-term and transactional.
It doesn’t not directly lead to sustainable sales growth, repeat visits and pricing power, which can undermine the success of a business. Over time, discounting raises questions about your pricing structure.
For example, if a meal sells for $15 and you continue to offer $5-off coupons, you train guests that meals are only worth $10. If such promotions go on, $10 is the only price they will feel comfortable paying.
The trick is to discount in such a way that does not undermine the integrity of your pricing structure. Read on for some best practices.
Best Practice 1: Use Discounting Sparingly
The first rule of effective discounting is that, once you establish the retail price for a product, particularly a key product like a big seller, never discount it.
A product’s price is part of its position in the marketplace. Discounting it will have a detrimental effect on the perception not only of that product but of your whole business.
Discounting Best Practice 2: Offer Short-Term Discounts Only
Effective discounting requires small business owners to avoid offering a promotion that weakens the credibility of your pricing structure.
The way around this is to create a short-time only proposition separate from the regular offering, that will not negatively affect customers' perception of the value and price of the regular product line-up.
In the case of new products, establish a retail price, then offer a reduced price as an introductory offer only. After a predetermined period, bring the price up to the full level. Better yet, offer to give away one new product free for a limited time, it will encourage new customers and ideally lead to sales of other products.
Offering discounts to an existing customer base will not give you the benefits of increased trial or repeat business. Instead, it may erode years of positioning efforts. If you rely on discounting promotions, you must take a longer look at your operation.
Don’t use discounting casually to build sales. The long-term effect will be reduced respect for your products and pricing structure. Use discounting to build traffic during specific periods, to generate interest in new products.
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