I've have a few conversations with people this past week about discounting. I've also seen a lot of businesses discounting their products and services. So if a lot of people are doing it, does that mean it's a good idea?
Well, it might be a good idea for your business, but it might not. Here are the things to consider.
Will you still make a profit?
First of all, what is your net profit margin? Your net profit margin is your sales (in a given period, say last quarter) less all your costs (cost of goods sold, overheads, salaries and marketing) and divide that by your sales.
This is really important to work out because if your profit margin is 20% and you suddenly discount your products by 20% without reducing any of your costs, that's all your profit gone. If your profit margin is 10% and you discount your products by 20% then you'd be better off shutting your business. You're losing money.
So before you even think about discounting, make sure you have checked this number first.
the problem with discounting
I'm always very wary of discounting because it usually results in the customer devaluing the offering.
There's a well known clothing brand (who I won't name) who regularly gives 10-25% discount. As a result, I'd never pay full price for their clothes because I know they'll send me a discount voucher soon. I'm also reluctant to buy when the discount is "only" 10% because I know they'll probably have a bigger discount soon.
The other risk with discounting is that it erodes customer loyalty. If I pay £50 for something and then next week I see there's a 20% discount on it, I'm going to feel annoyed. I won't enjoy my purchase as much, because I'll know I paid more than I needed to pay, and I won't trust the seller as much. Maybe they'll do that to me again?
Why are you discounting?
If you're discounting because everyone else is, STOP! That's never a good reason to discount and I rant about it every year on Black Friday.
If your product is now less valuable, for example because your service is not as effective when delivered virtually, then it may be appropriate to reduce the price to reflect the value. In that instance, to avoid confusion and devaluing the in-person offering, I would create a new product with a different name and pricetag, which is the virtual version of what you offer.
On the other hand, if you're discounting because what you offer is suddenly in dire need and you genuinely want to help people, then that's different. I'd also recommend you get in touch with recent customers and offer them a partial refund or extra gift, so they don't feel put out that they lost out on the discount because they bought too soon.
This reason for discounting is not about finance at all, it's about values. If its important to your values that what you offer is accessible right now then be upfront about your reasons, shout it from the rooftops and you may find it turns out to be really good PR.
What can you do instead of discounting?
If at all possible, I advise people add value instead of discounting. If you need to discount to win sales it means that your customers are not seeing the value in what you're offering. That's not to say it's incorrectly priced, it may just be you haven't got your messaging right.
To the people I've spoken to this week, I advised adding value in extra video content, tutorials, pdf downloads, audios and other materials that could be created relatively quickly and packaged into the product to add value for the customer. Then when your customer is looking at the price, they'll see a lot more value for their money.
Need more help?
If you'd like some advice on whether discounting is the right strategy for your business right now, book a free 30-minute call with me and I'll be happy to discuss it with you and help you work it out. I know there are a lot of people panicking about their businesses right now, but there are also a lot of opportunities to provide more value to your customers.Get in touch if you need help.
In response to this extraordinary situation we're in, I've created a self-guided online workshop called One-Day Marketing Machine. You'll set your strategy and create a 1-page marketing plan that you can start executing straight away. And because I want to help small business owners during this crisis I'm offering £100 off while we're all social distancing. If you need some clarity and a structured approach to marketing, take a look here.
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