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Deciding on Discounts: A Guide for Small Business Owners

Sep 2, 2023General Information

If you’re operating a small business, deciding on discounts is a tough proposition, when one of your main objectives is to make a profit. Whether you are offering a service or products, this factor depends on the number of sales you complete. Unfortunately, you’ll likely compete against other businesses providing the same or similar items.

Deciding on Discounts

When a potential customer decides on the best option, they often consider the price and how much it will cost. Here’s where you can differentiate yourself by offering a discount. This tactic is a fantastic way to incentivize potential customers to spend money at your business. However, using this element has its pros and cons.

The Pros of Deciding on Discounts

One of the best pricing strategies you can implement to increase sales volume in your business is to offer discounts. Doing so can attract new customers and persuade regular ones to spend more.

One advantage of offering customers a discount is how it makes them feel. If the customer can purchase your product or service at a discount, it can make them feel good about the purchase. It can be beneficial in the long run and help customers build a stronger bond with your brand.

Discount pricing can also make it less likely for potential customers to choose a competitor brand over yours. If a new customer is searching for a product you sell, one of the main factors may be the price offered. Your discount gives you an edge by getting them in the door first.

The Cons of Deciding on Discounts

When you offer discount pricing, it does have some negative aspects. Some customers may perceive your service or product as having a lower quality, especially if the final price is way below market price or if the discounts are frequent. When some consumers pay full price, they may feel more assured about the brand or product quality.

Another con you can have when offering discount pricing is the risk of losing profits due to lower margins. While you may be gaining sales from individuals who wouldn’t have purchased from your business, you may also be losing profits from customers planning to buy from you anyway.

Also, some customers assume that products from a small business are always ‘bargainable’. If you offer frequent discounts, customers may notice and insist on the same even during non-discounted periods. When you face these challenges, it is critical to have a primary goal if you’re going to discount prices.

Create Goals Before You Discount Prices

When you’re going to offer a discounted price, having a primary goal is vital. This goal determines the type of discount you’re offering, how it’s marketed, and the customers you should target.

Without a goal, you can end up with the misunderstandings that occurred in the 1994 movie Clerks playing on DIRECTV STREAM. When the character Dante decides to provide a discount to his ex-girlfriend on cigarettes she is buying, it leads to unexpected outcomes.

Below are four popular goals you can utilize to avoid discounting mishaps:

1. Selling Old Inventory

Sometimes, you can offer discount pricing if you have old inventory that needs to be sold. When new products are entering your pipeline that perform better, it’s time to eliminate old stock.

Implementing this goal should help you quickly sell old items that would be sitting on your shelf otherwise. Margins are not as essential when going this route.

2. Increasing Sales

The main goal is to sell more services or products, which might mean you’ll run products with one another, going for a higher sales volume. If you have customers buying more before they check out, your goal will be met.

3. Acquiring New Customers.

If you want new customers to be interested in your services or product, offering a first-purchase discount can help. With discount pricing, it’s a lower risk to use your business, which can incentivize them to try your services or products right away.

4. Gaining Repeat Customers

When you have a base of customers who shop at your business regularly, having them come back is essential. By offering discount pricing, you are encouraging brand loyalty.

Types of Discount Pricing

After choosing a goal for the discount price you’re offering, you should select the pricing discount type that will work best with your goal.

1. Bundled Discount Pricing

When using bundled discount pricing, you lower the price of more than one item when sold together. Selling a group at a lower price can incentivize a potential customer to try a new product due to the lower price.

2. Seasonal or Event-Based Discounts

Offering a discount when you’re in a specific season or around a popular event, such as Valentine’s Day or Father’s Day, can help influence a potential customer to choose your business.

3. Volume Discount

Providing customers with a volume discount allows them to pay less per item if they purchase more items. An example would be to offer a 20 percent discount if they buy ten boxes of your product.

4. Prepayment Discount

Another excellent way to boost sales is to offer a prepayment discount. Doing so lets individuals receive a reduction in price if they purchase your service or product before it’s produced. This action helps you build cash flow, which you can use to buy additional inventory.

5. Free Shipping

Many individuals will look at the total cost of the product you’re selling, which includes shipping. When you offer to ship for free, it can decrease cart abandonment rates and allow you to make a sale.

Deciding on Discounts Conclusion

If you want your discount pricing efforts to pay off, you must have a strategic approach. Understanding your goals and matching them to the appropriate type of discount helps you avoid common challenges when reducing the price of your products and services.





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