In a world of ever increasing competition, the temptation to offer discounts to attract customers can seem almost irresistible. However, while discounting prices might create an immediate boost in sales, the long-term repercussions can be detrimental to a brand’s value, profitability, and reputation. Here are our five reasons why brands should think twice before resorting to frequent or heavy discounting:
- Decreases Brand Value:
When a brand frequently discounts its products or services, it may inadvertently convey a message of lower value. If customers begin to see the brand as “cheap” or of lesser quality due to constant discounting, it can become challenging to convince them of the genuine worth of the product. Over time, this can dilute the brand’s reputation, making it difficult to sell products at full price. - Margin Squeeze:
It’s simple math. When a product is sold at a discount, the profit margins shrink. If discounts are not strategically planned and become the norm rather than the exception, the overall profitability of the company can take a hit. While discounts might generate a surge in sales volume, the reduced margin can create more financial strain in the long run. - Creates Price-Driven Loyalty:
Discounts may attract an increase of new customers, but are they loyal to the brand or just the price tag? If consumers are conditioned to buy only when there’s a sale, their loyalty remains tethered to discounts. This means brands have to continually offer price reductions to keep these customers, instead of fostering genuine brand loyalty based on quality, value, or brand ethos. - Unrealistic Consumer Expectations:
Continuous discounts set a precedent. If a customer sees that a product is frequently on sale, they may delay their purchase until the next time there is a discount, because they know it is inevitable. This can cause unpredictable purchasing patterns, making it challenging for businesses to forecast sales and manage inventory effectively. Moreover, customers may feel cheated if they buy a product at full price only to find it discounted shortly after. - Undermines New Product Launches:
Imagine launching a new, innovative product that has taken months, if not years, of research, development, and marketing efforts. Now, if this product is immediately discounted, it can overshadow the actual value and benefits of the product. Customers might focus more on the reduced price than the product’s unique features or advantages. This can hamper the perceived value of new launches and stifle their initial market impact. Or if they are used to getting a discount, will wait until the next round of purchasing to buy rather than when it launches.
While discounts can be an effective tool for driving sales and revenue, they should be used strategically. Constant discounting can result in more harm than good, affecting a brand’s reputation, profits, and customer loyalty. Instead of relying heavily on discounts, brands should invest in building genuine relationships with their customers, enhancing product quality, and creating customer offerings that make them stand out in a crowded marketplace.
Does this sound like you? Reach out and book a discovery call to find out more about long-term and sustainable discounting that suits your brand.
