Discounts to attract customers: rules, exceptions, advantages, and disadvantages - GovtVacancy.Net

Discounts to attract customers: rules, exceptions, advantages, and disadvantages - GovtVacancy.Net
Posted on 21-10-2022

Discounts to attract customers: rules, exceptions, advantages, and disadvantages

With the help of discounts, you can quickly attract customers and earn a lot of money. It would seem that everything is simple: we print promotional price tags, make a newsletter, and buyers crowd near the cash register, and money flows like water. Yes, no matter how it is... It turns out that discounts have their own rules, advantages, and disadvantages

What are the pros and cons of discounts?

Too much competition makes a business fight for every customer and uses every method available to do so, including discounts. Because in the mass markets it is better to quickly sell many products at a relatively low price than to hope for luck and wait for the weather by the sea. In addition to earnings, discounts have many more advantages. With the right approach, they will allow:

Advantages of discounts

  • Sell ​​obsolete, seasonal, and expired products, so as not to lose the money invested and free up space in the warehouse.
  • Sell ​​items that are updated cyclically or have a short peak demand (new gadget models or clothing collections).
  • Reduce storage costs and increase business profitability. This applies to products that do not have seasonality and explicit expiration date. It is necessary to calculate the costs of your storage and if they reach 30% of the cost, make a discount and sell the rest (optimize inventory turnover).
  • Promote a product or service. Promotion will help generate interest among buyers and quickly gain market share.
  • Increase the percentage of repeat purchases. This is where a "deferred discount" comes in handy: for example, a customer places an order for a certain amount and receives 10% off the next check.
  • Attract new and retain old customers. In the latter case, the discounts must be individual.
  • Influence decision-making. When a customer thinks and hesitates for a long time, even a small discount can push him to buy.

Disadvantages of discounts

As you can see, discounts are a useful tool. But they also have their drawbacks, including:

  • Short-Term Action – Increase sales only for the duration of the event.
  • A negative impact on the company's image in the premium segment: deep discounts can alienate wealthy customers and attract stock seekers.
  • Habituation and decreased perception of value: there is a feeling that the product is of poor quality or the initial cost was too high, as well as the desire to buy only at a low price.
  • Additional advertising costs and the loss of part of the profit - you can get into the red with incorrect calculations.
  • The probability of emergency situations: lack of goods, lack of coordination between employees, problems with a delivery, etc. All this can cause negativity from customers.

Cases in which you should not discount

Promotions are especially effective in markets that are oversaturated with the same type of services and goods (appliances and appliances, jewelry stores, dry cleaners, etc.). This is where they can make a real difference. But there are a number of cases when it is better to refuse discounts, namely:

  • a narrow niche with a unique offer and stable demand: competition is low and discounts are not needed, but loyalty support programs are needed.
  • initially very high prices: the discount will be perceived as the establishment of a normal cost, and not as a benefit;
  • promotion for the entire range - only valid if the company closes or changes its profile;
  • very little benefit to the buyer - they simply will not pay attention to such a discount;
  • constant sales of the same goods and services - it is easier to continuously reduce the cost;
  • Their prices are already lower than those of their competitors.
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