How can you not be enticed with a pair of shoes being sold at half its price? Shoe buyers on a budget will strongly consider buying that pair because they will get the product at 50 percent off. That consumer behavior may sound like it’s good for your store. But being generous could hurt your business in many ways.
Consistently offering your goods at a discounted price may hurt its reputation and may impact sales.
Changed perception on quality
Consumers consider products on sale to be of much lesser value than those on regular price. That’s not all. Despite the appeal of bargain prices, shoppers will still choose a product based on its performance and durability. And this behavior is proven by a recent study.
In 2018, technology company First Insight found that 53 percent of the 1,000 consumers they surveyed deemed quality more important than price. Only 38 percent bought goods based on their price. The preference for quality over price crosses all generations (from boomers to millennials), gender, and income levels.
It’s smart to offer the best product for the cheapest price, but quality and value for money should go hand-in-hand. Because this is what consumers want, and ignoring what consumers want could damage your bottom line.
Cut in profit
When you go overboard with discounts, you could get more than you can handle. Take this unfortunate story of Posies Café, for example. The Portland-based coffee shop sought help from shopping site Groupon, to send discount coupons to their customers emails. The café’s foot traffic rose by about a third, but other problems started to unravel. Some customers didn’t spend more than the value of the Groupon offer. Some opted not to tip staff members. Others even tried to use expired coupons.
What you can learn from this is to control giving out freebies. The coffee shop owner said Groupon never informed her they can actually cap any deals they promote. It’s easy to be carried away with being too generous in the hopes of getting more traffic in return.
Your business has other options beyond giving discounts.
Entice with the right price
Pricing is critical to the success of your product and the profitability of your business. Consumers do tend to be price sensitive, but they wouldn’t mind spending more if they knew the value they could get. Consider what insurance company Allstate did to sell 3.9 million Choice policies by applying the Good-Better-Best pricing strategy. Allstate generated more sales by creating price bundles with corresponding features that appealed to customers with certain incomes.
Another method you can apply is price tracking, which gives you insight as to the pricing strategies of competitors. With competitive intelligence, you’ll be in a better position to plan how to boost your sales and profitability.
Highlight the value of your products
How will your products make consumer lives better? Can your insurance policies meet what your clients need? Will your software deliver on what businesses demand? Whatever it is you’re selling, for whichever industry, it has to contribute to improving life. When your products are proven to do so, you’ll have an easier time marketing and promoting your business.
Discounts do appeal to certain customers, but most will prefer value over pricing. So instead of appealing to fewer consumers, attract more buyers by pricing your products correctly and offering high-quality goods better than your competition.