The dangerous discount
Discounting your product or service is always a slippery slope. We have seen all sorts of cases where a company embraces discounting as a way of doing business. I am sure every person reading this has multiple Bed Bath and Beyond 20% off coupons stuffed in some drawer. Have you ever bought something there without the discount? Did you know you can even return and get the discount applied later? This the definition of a discounting failure.
Discounts and sales do have a place in commerce though. Limited time offers with attractive incentives are a great way to reach new customers and delight current customers.
Discounts and sales do have a place in commerce though. Limited time offers with attractive incentives are a great way to reach new customers and delight current customers. But there are a few items to consider.
Working with many local advertisers, I think the place to start is the incentive itself. Would 10% off excite the public enough to try your product? 15%? Or maybe it takes 20% to really change a consumer’s behavior. In my experience, 10% or 15% does not have the sizzle to drive new business, but 20% or 25% will do the trick. However, a 20% discount is pretty big, so maybe you restrict the time of the promotion to limit your exposure?
How consumers react to your offer is a key consideration as well. On a $50 item, what will people respond more favorably to: 20% OFF or $10 OFF? For me, the cash figure is much more tangible and requires less thought. Give me that 10 bucks in my pocket!
Another approach I really like, is not discounting the price, but adding on value as the promotion. In my time running Stargazer Barn, Sun Valley’s direct to consumer e-commerce website, we had great success running a tulip special, where instead of discounting the tulips, we added 10 stems of (relatively inexpensive) beautiful blue iris as the incentive.
We also offered “Free Shipping” as an incentive with success. However, we had already built most of the shipping charge into the margins, so we really did not sacrifice much profit in the equation, and people responded favorably to the scarcity of a limited time free shipping offer.
I also love buy one get one free promotions, or similar. Often giving away product is cheaper than discounting price.
The price and frequency with which your product is bought also needs to be addressed. Items you buy weekly at relatively low cost, such as a loaf of bread are great to run discounts on, since we all need bread, and you could change a consumer’s preference to your brand with a discount. With higher priced items, bought rarely or sporadically it is more complicated. If you sell a $150 bottle of perfume, that will last one year, you will want to be careful discounting, because the customer may not be in a position to buy more at regular price for quite some time.
You want your discount to bring in new customers and encourage return business of customers who will maintain a preference for your product once the sale goes away. The key is an attractive offer and a plan to maintain the new customer for a lifetime.