There’s a universal truth when it comes to customers: Everybody likes getting a deal. Whether it is business customers or consumers, it seems like finding a deal on something has become a new type of sport. With online coupons, TV shows like Extreme Couponing, and websites like Groupon exploding in popularity, it feels like it’s almost unfair to have to pay full price for anything. In the B2B world, many procurement officers makes it sound like discounts and extended payment terms are the norm. Unfortunately, this mindset can work against businesses that are looking to keep their product quality high and their prices low. If you’re a business owner, you may think that discounting your offerings will give you an edge over your competition. But when discounting happens too frequently and too haphazardly, it can undermine both the quality of your product and your customer base.
Let’s examine how discounting can be a faulty business strategy, and what better options exist for creating loyal customers.
How Discounting Sabotages Your Pricing Strategy
Whether you’re running a brand new business or your company has been around for years, a strong customer base is a major factor in your success. And regardless of how old your business might be, it could always use an extra injection of customer loyalty. The easiest way to create this, you might think, would be to have a sale on your products. Or maybe you want to set up a Groupon program to attract new customers. Either way, it gets the word out there, and soon people will be rushing over to buy your products, right? But when the customers come, will they stay long enough to make your cost-cutting worthwhile?
The harsh truth is that when you begin discounting your products, you’re sabotaging your business in a subtle way that you might not even see at first. The blog at Kissmetrics explains what could happen if you go this route: “Providing services at a lower cost can be the start of an ugly cycle – to cover the cash shortfall other quick hits are needed, which is the start of a dark, downward spiral that forces you to keep prices low and before you know it you’re in a hole too deep to get out of.” It goes on to explain that the only way to get out of this spiral is to compromise product quality, which can cause disillusionment and disappointment among your customers. By offering them discounts, you’re building up a customer base that one day might have to lower its standards rather than pay full price. In this scenario, nobody wins.
An additional hazard is discounting your products at uneven intervals. This blog post notes that customers who paid full price for a product only to see it discounted by 50% a week later may feel ripped off. Also, the author points out that customers can begin to expect sales, particularly if they happen often at a specific location: “While this strategy may help in the short term for month-end inventory reduction, it trains customers to hold off on making purchases until the next sale comes around.” Although that wobbly form of customer retention might pay off when the big sale happens, it’s entirely possible that they’ll become impatient and make their purchase elsewhere.
Better Than Discounts
If you can’t attract and retain customers with deep discounts and big sales, then what other options do you have to stand out among the competition? Here are a few ideas to try:
Make the focus on your product quality a selling point. Ensure that customers know that they’re getting what they pay for, and that your product has worthwhile value. Paying full price means they’re getting high-quality goods with no corners cut to prop up discounts.
Aim for the right demographic. When you know how to pitch to your target demographic, this blog post at Hubspot says that “price isn’t even an issue because you’ve successfully shown that what you have can solve their problems.” Market specifically to the people you want buying your product or service by telling them why they need it, and you could find some easy sales.
Create a brand that values its audience. With social media, it’s easier than ever for people to spread the word about a product they enjoy. Make social media outlets and customer service an important part of your business strategy, and communicate with new and potential customers online. You could find an outlet for a fanbase that you never knew existed.
Discounting Is Not The Best Solution
Offering deep discounts on your company’s products may seem like an easy solution for making customers happy, but in the long run this strategy can backfire, causing a ripple down the chain that ends with subpar quality items and dissatisfied customers. Instead, look for more meaningful ways to build up brand loyalty and bolster customer retention. It could mean the difference between success and failure as a business.