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Why discounting is bad for business

Written by: Mark Gwilliam

Article Overview: Discounting is a short term fix with long term consequences! While there is some disparity among experts, most say that even in the current marketplace, discounting can cause long term damage to your overall business success. According to www.sm.com.au, discounting is a costly strategy for retailers. While the book called, You Can Compete, suggests that discounting will double retail sales, most data points towards a business disaster. There are several successful alternatives to discounting that are available for your business.

Why discounting is bad for business

Retailers who have been indulging in discounting by dropping prices and holding pre-sales before major holidays risk losing customers over the long term. Discounting can cause a business’ customers to become conditioned to sales or discounts. If a change in the economy of your infrastructure were to require a price increase, you will likely lose a large portion of the client base that you worked so diligently to build.

There are several reasons why a business should avoid using discounting as a technique to increase sales, including:

Volume
Too many companies fail to account for the effects of price on sales volume. While reducing prices could yield additional customer purchases; can the purchases match and exceed the necessary volume levels for profitability when taking into consideration the deep discount?

Impact on Customer Relationships
Dropping and then raising a price back up can create ill will within your customer base. Some companies use this pricing strategy to engage a customer or to make a sale, hoping that this sale will result in a residual long term customer. Once the loyalty has been established, some companies then participate in price gauging, losing those initial customers to their competition who has a more consistent pricing model. Deep discounting can also tarnish your brand, unless you are looking to be considered over the long term as a deep discount retailer.

Impact on the Industry
Price cuts that are not backed up by the manufacturing company’s production cost reductions can lead to competitive counter attacks, potentially eroding your company’s profits. Competition can also be created among similar retailers unexpectedly, forcing you to take a lower than expected profit per item sold.

Margins are an essential component for a business’ bottom line. To read more about the importance of business margins, click here to read another one of my articles. There are several available strategies to avoid discounting your products for sale. Your business can give away gifts with purchases that have a high perceived value to its customers.

Businesses with outstanding client service are not concerned with discounting. Evaluate your current customer satisfaction levels and your current business practices to determine how you and your business can provide outstanding customer service. In addition to great customer service, a company with outstanding products & services does not have to concern itself with discounting. Ensure that your business is offering the best products available in its field or industry so that you can demand the appropriate pricing for the product’s value.

While discounting may be implemented and appropriate for some retailers and businesses, the concept should be carefully considered for its effects on your business. The use of alternatives to discounting will be more beneficial for your business growth over the long term. Consider which strategies will be the most effective for your business and business niche.

Related Articles
  The Dangers of Discounting
  Why Discounting is Hazardous to Your Business
  Sales is Discounting Again
  How to Keep Sales Up In A Down Economy
  Build Value Not Discount To Avoid Becoming A Commodity in Your Industry During Good or Bad Times

Article Tags: business bottom line, business customers, customer base, customer purchases, customer relationships, deep discounting, discount retailer, ill will, initial customers, large portion, manufacturing company, margins, necessary volume, pre sales, pricing model, pricing strategy, sales volume, taking into consideration, term customer, volume levels



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