Why You Shouldn’t Discount Your Prices
Everyone loves a good deal. The savvy shopper knows that there are always discounts at certain stores, so no one would ever pay the total price. What about your small business? To drum up a new business, what’s wrong with offering a discount?
Discounts help new businesses and encourage repeat business and referrals.
Discounting prices will attract new business, regardless of whether you are looking at B2B sales or B2C. This is a fact. It makes sense to try and generate some cash flow quickly when sales are slow. That’s an excellent way to think. What about when you want those customers to return and buy again? Or if your customers are counting on their current customers to recommend you to their friends and families. This is when things can get a bit dicey.
Imagine that you offer a Groupon to your service. It will reduce your regular price by 50% or more. Customers who only want a deal will likely choose you if you offer a commodity that is readily available elsewhere. They’ll search for the lowest price next time they need it, which means they won’t be returning business. How can they refer you if they don’t understand how much you really provide? They can only refer their friends and family to buy Groupon. This creates a never-ending cycle of first-time customers who don’t convert into repeat customers.
How Discounts can really help your business
You can harm your business by selling your products or services at lower rates.
Lower Perceived Value
What are you telling your customers if you offer to give away an item that your company produces at a lower price than the market rate? They will become accustomed to paying less for the same thing. You can think of stores that have regular sales (Kohl’s Body Shop, Hot Topic) versus those that don’t (Trader Joe’s). It’s unlikely that you’ll pay the total price at discount stores, whereas Trader Joe’s won’t mind paying the total price. Customers will not look at the product they are receiving, but they will look at the price they pay for it.
Profits are reduced
Yes, it seems incredible to run a sale to make some extra cash. If you do this, you will end up making less money over the long term. Because overhead costs are relatively low, small businesses don’t have to add much to their prices. Take that margin, and you’ll see how quickly your money runs out. This is a poor long-term decision.
Prices are the main focus.
You want customers who ask you, “So how much does that cost?” As a small business owner, it’s important not to allow them to be your first customer. Attracting customers who are interested in what you offer is better than trying to get them to buy it. Discounting prices shifts the conversation from value to cost. This attracts a totally different kind of customer.
The traditional sales approach is to offer a solution, price it, and then wait. Companies that approach transactions from fear or lack will often use this time to think and drop the price in order to convince customers they won’t say no. Customers often feel that small businesses charge too much for their products or services. You are basically saying you don’t have confidence in your product or service, and this makes you seem untrustworthy.
A better alternative to price discounts
You can offer incentives to your customers by offering more value or something that will help your business.
You can offer more value by giving your customer something extra when they buy one item, such as an A/C check and oil change, or a complimentary haircut with the purchase of hair-coloring services. Make the complimentary item truly complementary-meaning that it is not just free but adds something to the product or service the customer is buying.
You can also offer incentives to do something such as paying upfront for multiple services or faster payment. This is a great way to get repeat customers: Buy five manicure services, and you’ll get the sixth for free. If the term for payment is 60 days, you can discount the invoice by 2% if it is paid within 30 days. These options can increase your cash flow and provide a sale to the customer. They don’t reduce the value that you provide, however.