23 May 2022
- deduct an amount from (the usual price of something).
Discounting is an ubiquitous word.
Consistent discounting may be a good acquisition strategy and even possibly a good retention strategy. But when brands overuse the tool, customers begin to expect only to pay ‘on sale’ prices.
Customers looking to make purchases have become so desensitised to brightly colored sale signs that what was once a useful tool to attract, retain, and upsell customers has become a short term counterproductive sugar hit.
If an item isn’t on sale, some customers may even choose to wait or go online to find a better price. Since thousands of suppliers are running sales every day, these customers don’t feel the need to immediately capitalise when they see one; yet they still expect to never pay full price!
This infinite loop of perpetual discounting and attracting customers is entirely dependent on lowering prices and or lowering your cost of sale, which has a few unintended consequences:
Constant discounting harms the perception customers have with a brand. Some brands no longer want to be associated with third-party stores that always seem to have red sale banners (both virtual and physical).
While constant promotions, whether its sales on a brand’s e-commerce store or a business front, may aid in brand awareness and customer acquisition, this strategy also conditions customers to always expect discounted prices. They won’t see the value in paying full price because they know they don’t have to, and that’s more harmful to a brand in the long-term.
As noted above, sales can be effective at attracting new customers. But that doesn’t always mean it will lead to a long-lasting customer relationship. Today’s customers are savvier than ever, bouncing from supplier to supplier, always on the hunt for the best price. There is so much more accessible information at a few clicks of a mouse button than anytime in our lifetime. Frequent discounts can mean you’re just getting those customers wanting a better price, not customers that actually want to engage with your brand.
It’s tempting for Suppliers to compete on price, but that’s not where brands can win. Once you continuously discount, you get yourself into a spiral because your margins get slimmer, and then you have to sell so much more to make up for the lost margin. It can become a vicious cycle!
For Suppliers, winning on price is a race to the bottom, and for customers, it has created a landscape of businesses with horrible customer experiences, low-quality products, and brands that are indistinguishable and interchangeable.
Instead, companies could be building relationships with customers by providing a unique experience, producing high calibre products and creating a brand with specific values that customers are willing to invest in.
Discounting may seem like a sensible idea when the cost of inputs are predictable or about to decrease due to favourable supply and demand conditions, or acquiring inputs volume discounts. It might even make sense to pass on some of these cost benefits to clients in a bid to remain competitive. However, inputs are also susceptible to external influences, such as supply chain delays, increasing freight costs, or foreign currency fluctuations, so it becomes important to maintain some pricing discipline over time.
When conditions change, they can change fast - e.g. recent inflation has increased the cost of most inputs. Staffing and labour costs have increased due to the competitive labour market and indirect impact of the ‘great resignation’ and low unemployment.
It is during these times where a heavy price discounting strategy can lead to a fast and prolonged margin squeeze that can destabilise your business and your ability to deliver quality and value to customers in the long run.
The textbook answer is to differentiate the heck out of your product or service. Both from a delivery, customer experience and use perspective. Once you have explored both conventional and unconventional ideas, consider making the purchasing process easier by offering multiple payment options and payment flexibility.
Run an A/B test run to validate the best options, from direct credit, to credit cards and online payment options, that speed up the time to transact, as opposed to creating payment delays or additional pain points for your clients.
If you don't have the balance sheet to offer extended terms, and wish to continue to receive payment for your services in a timely manner, consider offering a ‘pay in instalments’ option.
And if you have other pain free options that have helped your business, we’d be interested in knowing more about how they have helped you overcome the heavy discounting trap.
Procuret offers an online ‘Pay in Instalment’ option for business to business purchases. To pay with Procuret, you simply complete an online eligibility process in 2 minutes, and upon successful confirmation your supplier is paid upfront, whilst you pay in flexible monthly instalments.