Why Discounts are Bad for Business

Why Discounts are Bad for Business

Amanda Au

We all love a great discount. Whether as a business owner or consumer, it’s hard to resist a good deal and save money too. But when it comes to your business, discounts in the long-term can kill your business. It’s a slow kill, also, in that it is a gradual process that happens day-by-day—or in this case, discount by discount. You can end up losing not just money, but also brand reputation. Not convinced? We’ll highlight the dangers that come with discounting and the better alternatives that you can provide instead. Don’t go offering discounts without reading this guide first.

Obvious Benefits of Discounting

Before we do a deep dive into why discounts are bad for business, it’s important to acknowledge the benefits that they do provide. The most obvious ones are:

  • Attract customers (especially during tough times)
  • Make your products and services accessible to a broader market
  • Solve problems (a difficult or unhappy customer can be diffused with a discount)
  • Reduce & eliminate excess stock in store (get rid of your old products)
  • Generate interest and a bit of a buzz
  • Build customer loyalty
  • Speed up sales
  • Enter a new market easier
  • Increase in bulk buying (common with B2B)
  • Lure customers away from your competition
  • Match or even beat your competition’s offering

 

H2: The Disadvantages of Discounting

Just as there are advantages to offering discounts for your business, there are a host of disadvantages too. You can’t afford to be on autopilot and ignore them. As a business, you need to be aware of them.

Here are seven ways discounting is killing your business.

 

1.) You Create an Expectation of Future Discounts

The reality is humans are hardwired to expect things even when told, “don’t expect things.” You can probably find examples of this in your own life—both professionally and personally. When it comes to your business and offering discounts, you create an expectation of future discounts in your customer’s mind. This mostly happens subconsciously, not consciously, as you never explicitly stated you would be offering further discounts. Not only does it put a lot of pressure on you, but it’s not a viable option long-term unless you don’t mind losing a lot of money.

 

2.) Complications Can Occur

If you offer a discount to one customer, but not to another, it can create a lot of conflict and chaos, affecting both your operations and your reputation. Your pricing should be consistent throughout and be a one-price-fits-all.  Or else you might be seen as being unfair and playing favourites, especially if you’re offering different prices for the same product or service. Consumers want and demand consistency, along with fairness. It’s okay to occasionally offer a discount to one customer and not to another if that customer deserves it (apply situational intelligence here) but doing this long-term can damage your reputation.

 

3.) It Can Give the Wrong Impression

It’s easy to buy into the belief that offering discounts will only improve your reputation and brand as everyone loves to save money. But this couldn’t be further from the truth as humans want what they can’t have. It’s human nature. By setting lower pricing, you could give the impression of offering inferior quality. And we all know that impressions count.

By contrast, through setting higher pricing (i.e., the right pricing for your product or service), you are associated with traits like quality, trust, and expertise. Consumers crave these traits. This is what helps build great reputations. Generally speaking, bargain retailers (cheaper stores) are associated with lower quality products. In contrast, your higher-end retailers are associated with quality and refinement. If you were a retailer, what brand messaging and image would you want to be associated with? Apply this to your B2B.

 

4.) It Lowers Profit Margin

It’s no surprise that your profit margin will be squeezed when you sell your product or service at a lower price. This not only gives you a worse cash flow into your business, but the profit loss must be eventually made up for. This could cause you to close more deals at a higher price and force more sales to compensate.

 

5.) It Badly Impacts on Profits

In a highly saturated market full of competition, you can expect your competitor to match or even beat your discounted prices. Try to avoid a price war as it creates tension, and someone’s bound to lose. If you’re new to the market and your competitor is bigger and well established, then you’re most likely to fail. Remember, they are in a much better economic position to sustain lower pricing. As well, not only will you be left with less profit, but you’ll be expected to produce a high-quality product or service at continuous discounted prices. This will create a permanent reduction in your revenue.

 

6.) It Can Lead to Cutting Corners

It is not uncommon for businesses to cut corners to maintain their profit margins after discounting. This can result in the reduced quality of a product or service. You can be forced to cut costs in materials, labour, servicing, etc. This can easily lead to cutting corners, which equals low value and poor results for your customers. Companies that stand the test of time make sure to continually invest in quality products and services. They don’t cut corners, and neither should you if you want to thrive as a business.

 

7.) It Can Attract the Wrong Customers

Even though we all love a good discount, you run the risk of attracting the wrong customer when you offer discounts as a business. That is, customers who don’t appreciate real quality, and sometimes don’t even care. They simply just want to save money. As a result, they will go anywhere to source a product or service. Such customers hurt your brand’s image and overall reputation. You want to be associated with customers that know quality when they see it and appreciate it—and that don’t mind paying a bit more for the best.

 

So, What are the Alternatives to Discounting?

As a business, you always have alternatives to discounts, which are better in the long run. It’s never a black and white matter of “discount or no discount.” Instead, consider the following alternatives that are all tested and proven strategies to apply to your business. You will reap a high ROI once applied consistently:

  • Add exceptional value: Customers crave value when doing business with you. So, go above and beyond and give it to them. All great brands understand this principle and apply it consistently.
  • Make some necessary cuts: (Not to be confused with cutting corners). This could be things like not over hiring, doing your own PR instead of hiring an agency, spending less on advertising, etc. Look for areas where you can save money.
  • Stay relevant in today’s market: Upskill and continuously innovate to stay current, or else you’ll get left behind. Consumers want businesses that keep up with the times.
  • Align your business with a worthy cause: Today’s consumers care about issues like climate change and the environment, fair trade, diversity and inclusion, etc. Show you care by getting on board with these issues.
  • Keep refining your brand: Consumers care about branding more than ever—that is, reputable branding with a powerful message. Make sure that consumers know what you stand for, not just what you offer.
  • Offer perks and incentives: These come at a much lower cost than discounts. Consider offering competitions, birthday specials, anniversary deals, etc. Of course, you must be strategic with these, or else you could end up losing a lot of profit.

 

It’s normal for customers to expect the best possible deal from your business, but discounting isn’t always the best solution, as has been shown. Instead, look for alternatives that still add immense value to your customers.  For more help and overall advice on growing your business, Contact Content Callout, your B2B content marketing experts.