While offering discounts can be an effective strategy in certain situations, there are also scenarios where discounting products and services can be a bad idea.
Here are 14 reasons why discounting your prices could hurt your business:
- It attracts the wrong type of customers - deal seekers that will only buy from you again when you offer more discounts. These are “groupon” customers. Steer clear of them and let them stay on groupon.
- It kills your profit margins.
- It harms the perceived value of your products and services. Discounting erodes the perceived value of your products and services. Customers will start to associate your brand with low-quality.
- It harms your overall brand image - discounts can undermine your brand’s image as a premium or high-valued provider - which becomes a challenge to reposition your brand in the future
- It “commoditizes” your business. You become like groupon where people are only attracted to your business based on price = which is always a race to the BOTTOM. In the commoditized business model - the lowest price wins 100% of the time.
- It sets the wrong customer expectations: Regular discounts can set the expectation that your products and services are always available at a reduced price. Customers will then wait for discounts before making a purchase - which will hurt your regular sales.
- It damages customer loyalty: Relying on discounts as a primary strategy to attract and retain customers can lead to transactional relationships- where a purchase is only made when a discount is provided.
- It can lead to significant losses in revenue if the discounted prices aren’t balanced by full-priced sales.
- It can lead to negative cash flow: Discounting can lead to cash flow problems - especially if you have to acquire more inventory or resources to meet increased demand.
- It can be difficult to reverse discounting: Once you have trained your customers to expect discounts, it can be challenging to revert to regular prices without alienating them.
- Loss of control over your brand: If you use third party sites like “Groupon”, you can easily lose control over your brand's presentation and customer experience.
- It can create a bad market perception: Heavy discounting can signal financial distress or a lack of confidence in your products or services, which may deter potential & existing customers.
- It may cause you to sacrifice quality: To maintain profitability while offering discounts, you may be forced to compromise on products/service quality, which can damage your reputation long term.
14. Lastly, discounting prices is not sustainable long term. Relying on discounts for growth is not a sustainable strategy as it does not address core issues such as product-market fit, customer retention or innovation.
There are some cases where offering a small discount may make sense (ex: Birthday offers) .. but businesses that make a habit out of discounting prices to gain new customers are usually in for a rude awakening when their profits tank.