Why Discounts Are Bad For Business – What Are The Alternatives

I used to believe that giving people discounts would make you more money, but that’s not the case. How many of you give discounts with your products, with your services, with your contracts, whatever it may be?

I hate discounting as a digital marketing strategy, and if you’re smart, you should hate it too. Can a discount spike sales? Yes. Can Spike sell so much that you can triple or quadruple your sales volume in a single day? Yes, but the long term damage discounting causes is not worth it.

Psychology of Discounts

If you do give discounts, leave a comment with yes. If you don’t give discounts, leave a comment with no. I hope you don’t give discounts, but if you do, I’m gonna explain why you shouldn’t give them.

First, I’ll show you why you should never discount your products and services. And second, I’ll show you what you can do instead so you can still generate a huge spike in sales.

Most people think that “Hey, Cyber Monday, BlackFriday, big corporate contracts, why not give discounts? I’m making good money, I have good margins. It’s a great way to boost my sales.” That’s the wrong philosophy.

There are always going to be millions of reasons for giving discounts but there has so far not been a most effective discount percentage.

Discount Strategies and Tactics

What works for Amazon won’t work for you. What works for Flipkart, Zomato or Ola, and Oyo – all these other big companies in most cases – won’t work for you. And especially if you’re in B2B or in the enterprise world, you should never give discounts.

Zomato and Swiggy have their business revenue based on intelligent discounting. So they have to do what they are currently doing or you and I will find other apps to order food online.

Discounting is like a highly addictive drug, once you start doing it, you get addicted and so do your customers. There are definitely advantages of discount to customers. You like the sales spike, your customers like getting a great deal.

And if you keep doing it, that’s when things turn bad, really bad. The first problem is once you train your customers and prospects to expect discounts, they won’t buy without it. So how are discounts expressed then?

The J.C. Penney Story

You might remember when J.C. Penney had the bright idea to eliminate discounts from their stores. The story highlights the importance of discount to customers.

Long story short, it was a disaster. You see, less than one percent of J.C. Penney sales came from full price items and nearly three-quarters of all merchandise was sold by at least 50 percent off.

This means the listed price on J.C. Penney was basically meaningless. So the CEO got the bright idea. Instead of signing a check for 14 dollars and marking it down to six, we’ll just sell the shirt for seven without a discount.

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They were trying on Wal-Mart’s everyday low pricing strategy. Over the next 12 months, J.C. Penney sales tanked, as did their stock.

Disadvantages of Discounts

Discounting is like a drug, and you should never give your prospects and customers a taste of it. In fact, even the smell of dd discounts can kill a sale. A friend of mine was selling tickets to their event and had a spot for a coupon code on the sales page.

Now here is a quick story to describe the advantages and disadvantages of discounting. Someone emailed me and said, Derek, I noticed there’s a spot for a coupon code.

Do you have one for me? There weren’t coupon codes, but the mere mention of it made this person delay a purchase to search for one, even though one didn’t exist.

What’s funny is he ended up not buying the ticket, so don’t even have an option for a coupon code on your sales page. The benefits of coupons for businesses is always temporary and addictive to customers.

Before you decide to share a discount coupon, you need to evaluate the pros and cons of price discounts. In the long run, there will be more disadvantages of money off coupons.

Effect of Discount on Customer

It’s the worst thing that you can do. The first reason why it sets a bad precedent. You don’t wanna set a bad precedent. The moment you do that, what you’ll find is when people are like, “Oh yeah, you’ll give me a discount? Cool, what else can I get from you?” They’ll keep asking you for more and more and it’ll never stop.

In addition to that, they’ll also ask you to do more things at the same price. That’s gonna attract customers that are the wrong fit for your business. You will instead have to bear the cost of discounts.

In which, you’re gonna be doing work for them, you’re gonna be miserable, they’re not gonna be satisfied because you’re not doing a good job for all the extra things that they’ve asked you for. Plus, you’re not really making any money. You don’t wanna be in that position.

The second thing that I learned is it ruins your brand. Yeah, the people who buy stuff at a discount may be happy, but all your normal customers who buy from you, which is a majority during normal times, will not be happy because they’re not getting the discount.

How can Discounts Devalue your Business

It erodes the value of your brand in the eyes of your prospects and customers. I recently read some research in the Journal of Consumer Research.

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There are two groups of people. One group of people, after buying a jar of organic tomato sauce for Rs.195, were offered family spaghetti for a highly discounted price of Rs.90. The other group of people, after buying the same jar of tomato sauce, were offered a box of spaghetti for free.

In both scenarios, the researchers then asked the participants, how much would you be willing to pay for spaghetti? What happened? The first group, the group that received the spaghetti at a discount, was only willing to pay an average price of Rs.95.

For the second group, the group that received the spaghetti for free, we’re willing to pay an average of Rs.195. What does this mean? Discounts erode brand value immensely.

You don’t wanna ruin your brand. And if you don’t wanna ruin your brand, stop offering all of these promotions. Sure during the holiday times, yeah, you may get a boost in sales, but it doesn’t last for long.

And let me go into the third lesson I learned why you shouldn’t be offering discounts. And this is somewhat related to number two. Now one of my companies, we used to offer a discount.

We found that when we offered a discount, the people who signed up not only grumbled more, caused more support issues, but they churned 29% faster.

Not only were they paying us less, but they were also grumbling more causing more support requests, and they were churning much faster and it was causing us to make less money. For that reason, we stopped offering discounts altogether.

The fourth reason is you devalue your product or service. You’re gonna look cheap. You wanna go upstream, that shows you make more money. Devaluing your price, discounting it, is not gonna get you there.

What you’re gonna find is, if you’re giving a discount, people like, “Oh, wow, this isn’t the premiere solution.” You’re not gonna go to Goldman Sachs and ask them for a discount.

You’re not gonna go to a big company and expect them to bend over backward and give you the price that you want. That’s not how the world works. Because they know if they give you a discount, they’re gonna reduce their margins, they’re not gonna be able to provide the service that your customer deserves.

Business to Business Discounts

I help companies grow their marketing. We get them more traffic, more sales. When people come to us asking for a discount, and if we gave them, and we do not do this, but if we give it to them, we won’t be able to provide them the same service because it screws up our margins and in some cases, or in many cases, we can actually lose money on an account.

Why would we want to do that? Because if we lose money, we’re not gonna be happy. There’s no point in working and actually putting money out of our pocket to fulfill a client.

Discounts

So the only way to fulfill his is by reducing the scope if we would give a discount. If we reduce the scope the client’s not gonna get their result, they’re not gonna be happy either.

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You can’t give a discount. It’s just gonna backfire on you. It’s one of the worst things. I can’t emphasize that enough. Too many people make this mistake, especially in B2B.

And the last lesson I have for you is you’re attracting the wrong type of customers. It’s not just about getting a sale, it’s about having customers that last long, that you can upsell, you can down-sell.

And when you give discounts, those types of customers aren’t gonna keep buying from you unless you keep offering more and more discounts. It creates a bad habit.

So don’t just optimize for short-term income, optimize for long-term income by not giving a discount. Optimize the lifetime value of your customer. Think about upsells, downsells, other similar products that you could be selling.

Discount to Sales

So the big burning question is, well, if I can’t discount to spike sales, what can I do instead? Well, instead of lowering your price, think about adding more value. As an example. Let’s say you’re a life coach. You’ve got some openings for new clients and you’re worried you might not fill them.

So you think, let me run a quick sale, you’d be an idiot for doing that. Instead, you could run a promotion where for the next seven days, everyone who pays full price for your life coaching will get something additional at no extra cost, maybe a 15-minute Lazarre coaching session or seven days of email support or a free ebook.

By adding more value, you’re getting new clients to pay full price and enticing them to act now before the promotion ends. It will not happen overnight. You will have to learn how to sell without discounting.

Or as another example, let’s say you’re a Web designer, you want to sell Web design services instead of discounting your rate to fill up clients. You can offer one free landing page design with the purchase of a web design. You need to learn how to not give discounts.

What’s the key here? When you add the bonus to your product or service, put a time limit on it. The time limit will help entice people to act now so they won’t want to miss out on the additional value.

And that’s that. To recap, don’t discount add value. It’s the right thing to do for your business for long term growth. Now, a question. Do you have a friend who offers one too many discounts? Send them a link to this video to reveal why discounting might be killing their growth.

And if you’re new around here and want more videos just like this, subscribe to my channel.

You’ll thank me later. Finally, what I want you to do is this. Tell me about a time when you dealt with a customer who harassed you to discount your products or services.

How did it make you feel? What did you do about it? Tell me about it in the comments section. Lets connect over Facebook/Twitter/Instagram – @jasonmdigital for any queries or discussions.

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