Blue Elevator Blog

The Discount

If you’re a buyer, you love the discount.  And, who doesn’t love a great deal?

For probably as long as life as we know it, the use of the discount has been a prevalent selling strategy.  But, what about it?  For some organizations, it is used infrequently or not at all.  But others use it all the time.

Discount Caveats

Here are some things to consider when offering a discount:

1. Sometimes, sales people and business owners use the discount to close the deal.  When this is the sole marketing strategy, it devalues the essence of your offering.  In theory, a properly priced and well-developed good or service should sell itself.  Be careful that your discount doesn’t devalue your offering.
2. By offering a discount, you can insert a slight element of distrust.  Negotiating can sometimes introduce stress into a relationship you are trying to establish or nurture.  Does someone who pays full price get ripped off?
3. By offering discounts, you may actually curb engagement.  An organization’s reliance on discounting as a sales tool may incentivize people NOT to buy.  People may be sitting on their wallets or clutching their purses waiting until the next sale or bigger discount.
4. It’s hard to stop once you start.  Once a company starts discounting, it becomes difficult for it to find its way.  An exaggerated example of this is the neighborhood furniture store.  Seemingly, every month, the furniture store is “Going Out of Business” and “Everything Must Go.”  To get a boost in sales, it appears the store has to offer greater discounts.
5. Organizations that offer discounts may also find it difficult to properly scale as they lack necessary margin.  A discount off of your sales or offering price is a dollar-for-dollar reduction in your bottom line profitability.
6. Related to the item above, discounting distorts (or destroys) your break-even point.  Every business should know the amount of gross sales necessary to break-even.  All businesses should have a break-even model that they use to help drive their organizations.  It should list all fixed costs and the amount of gross sales (less direct costs and selling costs) needed to cover these fixed costs.  Discounting will directly affect an organization’s financial performance.  If you are the business owner, you will need to sell more to cover the discounts you provide.
7. Discounts can create division.  Have you ever purchased a good or service and later learned that someone paid much less than you?  Human nature causes us to feel poorly about those situations.  We might not like the organization when we learn that Susie got a better discount on the same good or service.

Summary

It’s okay to offer discounts – just be mindful of the caveats.  Your goal is to engender goodwill all the while promoting maximum engagement.  Be encouraged to ensure your pricing strategies do just that.

Contact us!