Most people believe that offering discounts would make them more money. But truth is that that's not always the case. Discounting for business is not as appealing as a lot of people think and actually, in most cases, it doesn’t drive the profit growth the business is aiming to generate with it.
In this article, we are going to share with you why giving discounts in most cases will put you out of business and the few cases where instead if you use discounts as part of a good pricing strategy you can generate higher profit.
Hi there, and welcome back to Serendipity Marketing. We're a digital marketing agency with a mission to help small businesses grow by applying psychology to their marketing strategies.
Before we get started, we have a question for you. How many of you give discounts on your products, your services, your contracts, whatever it may be? If you do give discounts, leave a comment with yes. If you don't give discounts, leave a comment with no.
Most people think that on the occasion of Cyber Monday, Black Friday, or big corporate contracts, it’s good to offer discounts as they are making good money and have good margins.
They see it as a great way to boost their sales.
And unfortunately, in these cases, that's the wrong philosophy.
What works for Amazon won't work for you. What works for Macy's, or Nordstrom, all these other big companies, in most cases, won't work for you.
And especially if you're in B2B or in the enterprise world you should never give discounts. It's the worst thing that you can do.
The first reason why is that it sets a bad precedent. You don't want to set a bad precedent. The moment you do that, what you'll find is that when people understand that they can get a discount for you, they will unconsciously think that they can get more from you.
They'll keep asking you for more and more and it'll never stop.
In addition to this, they'll also most likely ask you to do more things at the same price.
And this is going to attract customers that are the wrong fit for your business.
You're basically going to be doing work for them, you're going to feel miserable, and they're not going to be satisfied because you're not doing a good job for all the extra things that they've asked you for.
Plus, you're not really making any money.
And you definitely don't want to be in that position.
Poor brand reputation
The second thing is that discounting for business ruins your brand. Yeah, the people who buy things at a discount may be happy, but all your normal customers who buy from you, which is a majority during normal times, will not be happy because they're not getting the discount.
You don't want to ruin your brand’s reputation like that.
And if you don't want to ruin it, stop offering all of these promotions.
Sure, during the holiday times, you may get a boost in sales, but it doesn't last for long.
And let me tell you something more related to this; one of the companies we work with used to offer a discount. They found that when they offered a discount, the people who signed up not only grumbled more, and caused more support issues, but they churned 29% faster.
Not only were they paying them less, but they were also grumbling more causing more support requests, and they were churning much faster and it was causing them to make less money.
For that reason, when we started working together, we stopped offering discounts altogether and things have positively changed straight away.
Devalue of your offer
When you offer discounting for business there is a high chance that you devalue your product or service.
You're basically going to look cheap.
You want to go upstream, that's how you make more money.
Devaluing your price, discounting it, is not going to get you there. What you're going to find is that, if you're giving a discount, people get to think that your offer isn't the premiere solution.
You're not going to Louis Vuitton or Prada and asking them for a discount. You're not going to a big company and expect them to bend over backwards and give you the price that you want.
That is not how the world works.
And that’s because they know that if they give you a discount, they're going to reduce their margins, and they're not going to be able to provide the service that your customer deserves.
So, you really want to think about it.
At our digital marketing agency, Serendipity Marketing, we help companies grow their brand reputation and profit through digital marketing.
We get them more traffic, more retention, and more sales. When people come to us asking for a discount, if we gave it to them, and we do not do this, we wouldn't be able to provide them the same service because it screws up our margins and, in some cases, or in many cases, we can actually lose money on an account.
Why would we want to do that? Because if we lose money, we're not going to be happy.
There's no point in us working and actually putting money out of our pocket to fulfill a client.
So, the only way to fulfill them is by reducing the scope if we would give a discount. If we reduce the scope the client is not going to get their result, and they're not going to be happy either.
In these cases, you can't give a discount. It's just going to backfire on you. It's one of the worst things.
We can't emphasize that enough. Too many people make this mistake, especially in B2B.
And one of the most important things that will affect your business, in the long run, is that you're attracting the wrong type of customers.
It isn’t just about getting a sale, it's about having customers that last long, that you can up-sell, you can down-sell. And when you give discounts, those types of customers aren't going to keep buying from you unless you keep offering more and more discounts.
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When to correctly use discounting for business?
There are instead a few cases where discounting for business can be used to consistently boost sales and conversion rate.
These cases that we are going to mention in a moment, are completely different than the one mentioned above and have to be part of a good pricing strategy.
So, let’s start by mentioning why offering a discount can be appealing.
Offering a discount make people feel that on top of all the benefits that they will get by purchasing your product or service, they are actually making a good deal as they are going to get it cheaper.
It basically stimulates a feeling of victory and status achievement.
So, the cases when discounting for business is good are when your audience is positively impacted by this kind of feeling.
And, as per what was mentioned above, it is mainly recommended to be used as a first hook to get people in the sales funnel, so as something special that they can get just once, rather than something that they can get all the time.
This way, if they know that’s something that is occasional, they will also be more incentivised to close the deal as they might lose the chance if they don’t take advantage of it.
Also, when you offer a discount, you have to be smart. Offer a discount that can anyway guarantee you to keep good margins and profit to be able to guarantee great-quality service.
This way, you can give new customers an initial taste of your amazing product or service at a discounted price initially – where you can still guarantee quality making money – and then charge them the full amount to continue using your product or service.
What you’ll find is that most of the people will be happy to pay you the full amount as they are reluctant to lose what they gained (your amazing product or service) and to restart searching for an alternative. Especially if they are happy with what you are giving them.
So, don’t just offer a discount because if the price is cheaper, it will attract more clients. That isn’t true.
You won’t attract more clients, and the ones that you will get won’t come for the value that you offer but just for the price. They won’t see the difference with your competition and will become a headache.
If you want to use discounts for business, use them smartly. Test if that’s the right feeling that will positively impact your target audience the most and make it part of a good pricing strategy where the discount is an initial hook and you can still get margins and profit by offering a lower price.
If you need help with your pricing strategy to grow your business in terms of visibility, engagement, and profit, contact us today and speak with one of our digital marketing experts to see how we can build the bridge between the point you’re standing at right now and your goals.