By now, you must have read articles about how discounting can be an excellent way to make more sales, improve your profits, attract new customers, and grow your business. Know, however, that these benefits will only be valid if discounting is appropriately done. Unfortunately, if done wrong, discounts will do more harm than good to your company. Regardless, the cons of discounting are essential to consider, as they can give you a good idea of why you might think twice before going ahead with discounting your offerings.
That said, here are a few reasons you may not want to opt for discounting:
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Hurts Confidence
When you see a cheaper product next to a more expensive product, what do you automatically assume? In most cases, you would assume that the cheaper product is of lower quality than the pricier product. Of course, in reality, this isn’t always true, but this kind of perception is what people might have if they see your products at a discount.
Sure, those who want to save money will make the most out of your discounts. However, continually discounting your products can hurt your reputation and/or your precious brand. Customers will wonder why you’re always discounting your products, thinking that the quality is too low to be worth its original price.
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Covers Severe Issues
If you are dealing with poor cash flow, discounting might seem like an easy way out to increase sales and the like. Of course, this will only happen if you plan your discounts properly. Unfortunately, discounting forces you to sell more, and if you can’t balance the number of sales with the discount you’re giving, you’re just masking the original issue.
As such, if you are trying to improve cash flow, it is far better to consult with your accountant to see where costs can be trimmed. Having a chat with a team member at MKS Group, or even reading our previous blog on Surviving a Cash Flow Shortage: Our Guide can save you from needing to discount your stock. This will help you get a better long-term plan to improve cash flow, whereas discounts will force you to sell more in an attempt to make money.
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Encourages More Discounts
When you set discounts, your customers will expect more discounts in the future. This is generally a given. However, if you continually offer discounts, all your other products that are not on discount will automatically look like they are much more expensive and not worth the price. Unfortunately, this is the price you will have to pay when discounting a product. As soon as you offer a discount, customers will expect to see this come back again. Research also shows that customers will delay buying in anticipation of you lowering your prices.
For that reason, don’t only give discounts because you feel like it. Plan the whole strategy out, and ensure any discounts you offer now are part of a bigger plan that you can sustain. If you can, work with your accountants to see how you can use discounts to boost your cash flow.
Conclusion
All in all, when going about discounting, take your time to understand your goals. If you can, work with an accountant and see how you can use discounts to benefit your business, not bring it down. Remember, discounts aren’t necessarily a bad thing. They can be used to do so many great things, such as getting rid of old inventory, attracting customers to try out a new business model, and more. However, if done wrong, it can lead to the demise of your business quite quickly. Because of this, working with an accountant will ensure that the discounting plan you have is sustainable and helps to grow your business, not the other way round.
Price reductions (or discounts) need to be planned. If you can source bulk products at a lower price, then you either have the advantage of making greater profits, or if it is a volume based product, then you could discount them to sell more products at a lower margin. Either way, this needs to be properly planned and correctly executed. Remember, your brand is yours – and your value is in your brand.
MKS Group have services for you and your business to take smart steps in ensuring you are discounting to your customer in the right way. Talk to one of our experts today and find out some business growth tips! We are always accessible by phone at 9374 8400 or email at hello@mksgroup.com.au
