Could Discounting Be Harming Your Business?
Let’s face it, we all love a bargain; but could lowering your prices actually be doing you more harm than good?
I know it sounds strange, but hear me out.
I was recently shopping for a dress to wear to a wedding. I knew the exact style I was looking for and found a number of stores selling it. Sure, I could get it from Valleygirl MUCH cheaper than at that little boutique down the street, but personally, I wanted to get it from that boutique. Why? Well obviously the fabric was nicer and better quality, but it was the fact that everyone shops at Valleygirl which deterred me. The reason why everyone shops there? Because it’s cheap and affordable. Don’t get me wrong, I still shop at Valleygirl and the likes, but in this instance I didn’t want to shop where everyone else did. I liked that the boutique was more expensive because it gave me that sense of exclusivity. I felt important shopping at a place that was seen as expensive and I was quite happy to wear the cost (if you’ll pardon the pun). In a way, what I really bought was a feeling. I felt better knowing I was wearing something not everyone could afford and knew I was getting quality with that price tag.
My point here is this: If you constantly lower your prices then you risk lowering your worth along with it. If your products or services are cheap, people may see your business as cheap. If you can raise your price, people are more inclined to trust you because they see what you’re offering as high quality. So sorry Valleygirl, it was actually your cheap prices that lost me this time.
So to discount or not to discount. That is the question… The answer? Know the expectation of your product, service and the overall experience.
Below are the two types of businesses and why they should and should NOT be discounting.
Business Type 1: The High-End Luxury Brand
High-end brands are all about the brand itself. These brands DO NOT reduce their prices in any way. They’ve discovered what they can offer is different and focus on this element, using their price point to draw customers in. High-end products are usually expensive to the common goer, but this is what makes the products and services more appealing to its market. They sell off exclusivity, scarcity and status. By buying high-end luxury products and services, you are in fact buying into the brand and how the brand makes you feel more than what the product does - Imagine if Chanel or Gucci started to have sales, discounting their products so they could get more buyers. A move like this would be detrimental to the brand and could ultimately lose its high-end customers.
Business Type 2: The Affordable Brand
‘The bargain hunters’ - These three words are what this business is all about. This is not to say you need to be offering cheap and nasty products, just offer your customers more bang for their buck. If you offer a low to medium priced service or product then discounting and having flash sales may actually benefit your business. The customers that buy from affordable brands always love a good bargain or sale. The experience and excitement of looking at a receipt to see how much they have saved is what they look forward to the most. My mother has always been the biggest bargain hunter and thrives on some good savings. If she talks about her shopping experience it always starts with what she bought and how much she saved, leaving her feeling accomplished and happy that she got more for her money.
It really all comes back to understanding your target market though (see last week’s blog here). At the end of the day, you need to ask yourself this question; do you want people to see you as the luxury brand or the affordable brand? What ever you decide you must stand by your decision. If you’ve gone for the high-end luxury brand then you need to stick to your prices - Don’t let anyone question you. The moment you start discounting to keep a sale is when you start de-valuing your business and products.
Tip: Test your customers - See how far you can go upping your price until you get a “no”.