Any time a company is looking for ways to drive sales, someone is bound to pitch the idea of offering a discount to customers. That’s especially true today with the prevalence of group buying websites, like Groupon and LivingSocial.
Make no mistake. Offering a great discount is an effective way to bring customers in the door. Everybody loves getting a good deal, but the problem is that while offering discounts might prove to be successful in the short-term, it often has damaging long-term effects.
Here are 4 really good reasons NOT to offer discounts to customers.
- It devalues your product—If your product normally costs $100 and you have a sale where you mark it down to $50, how are you ever going to get customers to want to pay $100 for it again? They’ll view your sale as a statement of what your product really is worth, and they may never want to pay more for it again.
- It cuts into your profits—Let’s go with the same example as earlier. Your product is normally $100 but you cut the price in half to $50. Now, you’ll have to sell twice as much of the product to make the same amount as before, and your profit-per-transaction will go down significantly. You could actually end up losing money on your sale.
- It attracts price shoppers—Whenever you offer a discount, most of the people who come through the door are people who are just there because of the price. They’re not concerned with value or quality. They only care about price. And price shoppers are the most disloyal customers of all.
- It starts price wars—Offering a discount could entice your competitors to do the same, only with an even bigger discount. And then, you have to up your discount, and so the price wars go on and on, until someone has to tap out.
What do you think? Are discounts a good or bad thing?