2018-03-27 07:43:18OperationsEnglishLearn why offering a discount is a poor strategy that can have several repercussions for your business. Find out how discounting hurts your...https://quickbooks.intuit.com/ca/resources/ca_qrc/uploads/2018/03/Retail-small-business-owner-evaluates-choice-to-discount-pricing-of-merchandise.jpghttps://quickbooks.intuit.com/ca/resources/operations/small-business-retail-profitability-discount-pricing/Refrain from Discount Pricing

Refrain from Discount Pricing

2 min read

As a business owner, you spend a lot of time thinking about ways to drive sales of your product or service. While the simplest option is to offer a discount, this is a short-term solution at best, and it can cause several issues for your business in the long-run.

Discounts Put the Focus on Your Prices

Businesses generally try to win customers over on their quality, their service, their pricing, or some combination of those three factors. Even though setting competitive prices that align with the market is usually a sound strategy, trying to attract customers through low prices usually isn’t. If the only reason customers choose your products is because of the prices, then you always need to charge less than the competition, and that can spell trouble if a competitor manages to match or undercut your rates. Considering how common price matching is, this hardly ever takes long.

It’s Hard to Operate on Slim Profit Margins

The costs of running your business probably aren’t changing when you offer discounts, which means you need to make due with smaller profits. This is difficult enough in the short term, and it’s even more challenging if you use low prices as a long-term strategy. Unless you were making huge profits to begin with, lower prices typically require sacrifices in some other area. That could mean making products with cheaper materials or providing a lower level of customer service because you can’t keep as much staff available.

The moment a customer has a poor experience with your business, the low price they got from you may not matter anymore. With the cuts necessary to operate on slim profit margins, discounting is almost never sustainable for small businesses. The Walmarts and Amazons of the world may be big enough operate on razor-thin margins, but most other businesses can’t.

Customers May See Your Brand Differently

Your prices play a significant role in how customers see your brand, and discounts may lead to customers believing your business is of lesser quality than the competition. Think about how you evaluate products when you go shopping and what comes to mind when you compare similar products at different price points. It’s natural to assume that there’s a reason one product costs more than another, leading consumers to often associate price with quality.

Not only can discounts cheapen your brand, they also show customers that your pricing isn’t firm. They could end up only purchasing your products at a discount, believing full price isn’t worth it, or trying to negotiate lower prices with you.

Finding the Right Prices

It’s important to carefully evaluate your products and set reasonable prices from the beginning. Discounting isn’t an effective strategy for most small businesses, and raising prices is something you should also aim to avoid whenever possible, as it doesn’t exactly make your customers too happy. Consider how much it costs you to make your products, the level of quality your business provides, and how much you need to charge for solid profitability. After you’ve set your prices, be firm about them and find other ways to boost sales.

Despite the popularity of discounting, it’s typically more trouble than it’s worth. When you bring in customers based on your quality and service instead of your pricing, you’re setting your business up for long-term success.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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