Should Your Brand Offer Discounts?
We all love a good sale.
But it’s worth considering whether it can help or hurt your business, both in the short- and long-term.
When you price your product, you should always include a healthy margin. That’s one reason there is a major focus from an investor standpoint to keep costs down.
When you factor in materials, labor, packaging and shipping, you should include enough profit to take a reasonable hit based on factors outside of your control (economic downturns, acts of God and the like).
Discounts are intended to increase sales volume yet even if it may bank a few more customers, brands have to be aware of how both the presence and the frequency of discounts affects their overall perception, not just the bottom line.
It comes down to positioning. The business definition states it as being “how you differentiate your product or service from that of your competitors and then determine which market niche to fill”. In layman’s terms, it boils down to how your brand fits in the market place.
Part of that is your brand identity, clearly stated and supported by the experience of your online presence (through imagery, social media) and your customer’s experience of the shopping journey and ultimately their satisfaction with the product.
The aggregate (what you put out vs how it’s interpreted) is what determines your brand value. And value is tricky when you play with a critical factor in that judgement: price.
Discounts are intended to increase sales volume but even if it may bank a few more customers, brands have to be aware of how both the presence and the frequency of discounts affects their perception, not just the bottom line.
We all see the allure and trend in seasonal or holiday pricing. And when it comes to keeping costs down, both you and your manufacturer love a bulk order.
But is discounting for or against your brand image?
Especially in the e-commerce space, perception is crucial. It’s an audition, in front of potential customers and current ones. When you discount, you agree to a trade-off: the same product at a lesser cost. And now that new price becomes the only price most customers would be willing to pay again.
They’ve ascribed a new value to it.
That’s the result of the assumption that lowering the bar will increase the reach. And it may, briefly. You may have an influx of sales at one time. But great businesses are built on long-term thinking.
There are successful discount brands, not because they slash their prices constantly, but because they source products that are already available for that. That’s why luxury outlets exist.
Rarely do you see a brand have constant markdowns unless it’s built into their overall vision and pricing structure.
Cash flow is important to sustain a business and tracking the changing tides of demand each season will help you realize a purchasing pattern and time your sale, should you choose to have one.
When you weigh a discount decision, you have to ask: What will my customers think? This is for the long haul. The space you occupy in the mind of your customer is critical. You have to account for buying intent and how a sale at one juncture may influence one (or lack thereof) at another.
So instead of a general site wide sale (especially when you’re not in the typical holiday season), I always encourage my clients to offer a sale specifically to past customers or people who’ve signed up for their email list. Past customers are rewarded for their loyalty and interested prospects are now given incentive to make another plunge.
Your overall brand perception remains intact because of the exclusivity of the offer and you are now speaking to a targeted audience, people who trusted you in the past enough to make a purchase and those who are already aware of you and just need a little push.
You have to be strategic, even when you just move stagnant inventory.
Unless it benefits your business model and long-term trajectory, keep discounts in-house and infrequent.