We have all taken advantage of a discount to try a new store or brand, but how many of you have made more than one purchase from that store? Was the second purchase because of a discount as well? While discounting might seem like an easy way to attract customers, it comes with some hidden dangers.
Many of the dangers of discounting are not immediately apparent, by the time you notice there is a problem it is often too late! Here are three dangers to be aware of if you choose to discount your products.
Dangers of Discounting
1. Can Devalue your brand
Discounting quite literally is devaluing the goods you sell, in order to entice a shopper to make a purchase. The danger is that it can create a permanent perception of lesser quality.
When a shopper sees that an item is discounted they immediately begin to speculate why it is on sale. Shoppers rarely assume you are discounting for a good reason. Shoppers often believe you are discounting a product because: the item did not sell well, your store is doing poorly, you are desperate, or the item is out of date or old.
Regardless of why a shopper thinks you are discounting it will always be devaluing your brand and the items you sell. When you discount items your shoppers start to wonder what those items are actually worth.
They might start thinking that your goods have always been of lesser quality and you are finally selling them for what they are worth. This is a terrible brand conception to have. Another conclusion your shoppers might draw is that you have been selling your items for really high margins, and taking advantage of them. This perception might actually be worse.
Shoppers will tend to draw negative associations when you discount. To avoid these misconceptions, tie discounts to actions. This could be offering a discount on a product if a shopper abandons their cart.
2. Sets unwanted expectations
When you offer a discount to your shoppers it sets an expectation. That expectation is that there will always be a discount. If you were willing to give a discount once your shoppers are betting you will do it again, and they almost force you to.
When you offer a discount to new shoppers, you are encouraging deal hunters to shop at your store, not profitable repeat customers. These shoppers are loyal to a good deal, not to your store. Once they receive the discount they will wait until you offer it again. The lull in sales from those shoppers waiting often forces a store owner to do it again, which starts a very unprofitable cycle.
This cycle is common when giving discounts to attract new shoppers. If you are going to discount try to give it to existing shoppers and tie the benefit to another profitable action such as leaving a review or referring a friend. This can be done with or without discounts using a loyalty program.
3. Can alienate your existing customer base
No one wants to feel like they come second to someone else. But your discounts might be making your existing customers feel like a second class shopper. This feeling usually stems from offering discounts and offers to new shoppers only.
Many ecommerce stores make discounts and coupons only available to first time shoppers. This is a very dangerous practice. Offering a discount allows you to acquire customers who may not have purchased from you without it. To many store owners it is reducing the cost of the discount. But it actually may be costing you more than you know.
If an existing customer sees a discount of 30%, goes to redeem it and discovers it is only available to a new customer they may start to ask why their repeat business is not worth rewarding. This will cause some animosity towards your store and could even cause that existing customer to leave. The problem is existing customers are worth much more than the new ones you are trying to attract.
In order to make your discount worth it, you will have to attract 9 customers for every existing customer you alienate. This is because an existing customer is 9x more likely to convert than a new one.
Once you know how valuable an existing customer is, you can see how a discount can quickly become more costly than you had intended. If you are going to offer discounts, be sure to make the discount open to everyone (if the discount is going to be publically visible).
Alternatives to Discounting
Instead of offering a discount try this simple but powerful tip:
“Provide your customers value through addition, rather than subtraction.”
This quote means that you should be giving your customers something for their business rather than subtracting from the price of your items. When you provide value through addition you eliminate the dangers of discounting presented above. Here are some examples of value through addition.
The most common example of value through addition is free shipping offers. You can offer free shipping on all orders to encourage all shoppers to make a purchase, or you can offer a threshold to encourage profitable shopping behavior.
Free shipping thresholds allow you to set a minimum order value to be rewarded free shipping. This is a great way to provide value rather than discounting and can also boost your store’s average order value, which leads to a profitable store.
Instead of subtracting an amount from the subtotal, try adding that amount as a free gift! A gift will not make customers question the value of your existing items and certainly will not make your existing customers upset.
A gift shows your customers that you appreciate them, while at the same time incenting them to make a purchase. A gift can also be tailored to your brand and your target market, something a discount is incapable of. You can also show the retail value of a gift rather that the actual cost of the gift to you.
A free gift can also be used in conjunction with the next recommendation, customer loyalty points.
Points are another way to provide value through addition. You can give your shoppers points when they make a purchase or register for an account. Some popular point programs use points to provide discounts, but that doesn’t have to be the case. You can create a points program that is not centered around discounts.
You can also use points for more than just encouraging a purchase, you can reward points for all sorts of profitable actions like creating a customer account or referring a friend.
A points program allows you to provide value to new customers and existing customers all at the same time. This makes a points program a strong customer retention tool as well as marketing tool.
The Dangers of Discounting
Discounting may seem like an easy an effective way to drive traffic and sales, but it comes with a price. That price might not be immediately obvious, but discounting is not always as effective as it seems.
To combat the dangers of discounting try to focus on providing your shoppers with value through addition, rather than subtraction. This will ensure that you and your customers have a healthy and long term business relationship.
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