Disadvantages of Offering Discounts (and 5 Profitable Alternatives)

Offering discounts sounds like a no-brainer strategy to boost your sales and generate buzz. You can also wield this as a tool to appease angry customers, entice them away from your competitors or build their loyalty to your brand.

All these benefits are apparent since we, as consumers, love them. But as a small business owner, you should be wary about overusing discounts. At the end of the day, they can slowly but effectively kill your business.

Below, we’ll talk about why discounts should not be your go-to approach to hitting your sales or marketing targets. We will also cover the top alternatives that can help you achieve your business goals.

The Dark Side of Discounts

We’re not here to denigrate the value of a well-timed discount that has been framed correctly. As we said, its benefits are apparent and can be felt immediately, especially in revenues and market reach.

However, some business owners become blinded by these short-term gains. Failing to see what’s ahead of their path causes them to stumble or go into free fall.

Why?

Well, here are five ways customer discounts can lead to the demise of your business.

Your gross profit margin will suffer

This is the most apparent effect of slashing your prices. Let’s say your product has a 50% margin. It’s on the higher end of the market, so you believe offering a 20% discount will encourage people to try it and eventually become regular customers.

To maintain the expected profitability of your business, this campaign should increase your revenues by at least 67%. That’s a challenging feat to achieve without additional marketing expenses to get the word out to as many people as possible.

So, in the end, you might earn less for the sacrifice.

Reduced prices can diminish your brand’s value

Most consumers associate low prices with poor quality. Though that might not be the case in reality, you can’t keep others from having the impression. Your customers may assume that you have cut corners.

Another probable outcome is the loss of confidence in your business. Customers might start believing that your products and services aren’t truly worth their original price tags. That’s why you can afford to give them discounts. In the end, they will refuse to pay full price or turn to other businesses they perceive to be of greater value than yours.

You will attract the wrong customers

You might be thinking: who would turn away paying customers for the sake of some marketing principles? Many startups don’t believe they have the right to be selective since they need to get the business off the ground.

This is dangerous thinking.

Failing to keep your sights on your target customers (and not just any customer who walks through the door) can be disastrous for your brand.

Rather than grabbing the attention of customers who can appreciate the quality of your products and services, you are going to be stuck with people who are just after a good bargain.

They won’t stay loyal to your business once your competitors lower their prices – and will toss you to the side as soon as someone cheaper pops up.

In the long run, these customers can also ruin your brand’s reputation – as you’ll be regarded as cheap or inferior.

Discounts may create unsustainable patterns

Even if you don’t say it explicitly, offering discounts to customers—even if it’s just once or twice—may form expectations that you will keep doing it to retain their interest.

You didn’t attract their attention because of the unique value that your business can provide. You attracted them because you were cheap.

Because of this, some entrepreneurs feel pressured to maintain the pattern, even if doing so eats away at their profits and brand reputation. This self-defeating cycle will also keep you from having enough funds to keep the operation running or invest in the improvement of your products.

You might instigate a price war between you and your competitors

As a general rule, small businesses tend to fare better if they do not try to match or go lower than the prices set by larger companies. Their larger competitors usually have more resources and greater knowledge on reducing operational costs.

At first, your discounts may win over a portion of their customers. However, chances are, more prominent players will find a way to undercut you and leave you to face the other consequences of this strategy alone.

5 Practical (and Profitable) Alternatives to Discounts

Customers want to get the best deal possible. You can provide them that without having to resort to discounting all the time. Below are 5 solutions and strategies that can help you enhance the worth of your business in the eyes of the customers.

Maximise your potential in a niche market

Many inexperienced entrepreneurs don’t realise the importance of selecting a niche, especially during the initial stages of the business.

As we’ve covered previously, you shouldn’t attempt to speak to everyone. There’s a chance nobody will be listening well enough to understand what you’re offering to them.

This scenario is what usually happens when you apply discounts. Yes, more people will pay attention to your business, but they don’t necessarily belong to your target market.

In comparison, offering products and services that a niche truly appreciates will allow you to maintain the integrity of your brand and demand reasonable prices. You also won’t likely have many rivals in this area, so you can avoid the pressures of staying cost-competitive.

Entice prospective customers with entry-point prices, product samples, or free trial periods

Many people refuse to buy a product or service they haven’t tried before, especially if there are no compelling reviews from verified purchases yet. Though discounts can do the job of convincing them to try doing business with you, consider how you can provide an opportunity for prospective customers to experience your product or service.

A typical example is the “7-day free trial” many streaming service companies offer nowadays.

“By signing up for this promo, you’ll have full access to our platform’s content and features for a limited time. When the promo period is over, you can continue enjoying their services through your preferred paid plan or stop altogether because you don’t think it’s worth the price”.

Sound familiar?

Work on increasing your perceived value among customers

Rather than providing discounts, focus your energy on enhancing the quality of your product or service and make it the very best option for your target market.

Your goal should be to turn your product and serve into a necessity or highly desired purchase so that customers will be more inclined to buy – even if yours cost more than similar products or services. 

Associate your business with causes that your target customers support

Another way to elevate your brand’s value and attract more customers is by showing how your business contributes to resolving issues your target market cares about.

For example, you can highlight how you only use environmental-friendly packaging for your products or how your team members are from diverse backgrounds and cultures.

It’s essential to demonstrate your sincerity to these causes—otherwise, it may have the opposite effect and drive prospective customers away.

Reframe your discount as “vouchers” or “special deals” for a given occasion

While they are all essentially price reductions, the connotation of each customer perk differs from one another. As discussed earlier, discounted prices may negatively impact your brand’s quality.

On the other hand, “vouchers” can incentivise customers to purchase the product or service again to avail of its value. “Special deals” for birthdays or anniversaries inspire positive feelings (and entice customers to buy) since they demonstrate how you care about them on a personal level.

Concluding words – It’s Not All Black and White

Discounts have their perks and downsides – just like most business tools. = When used in moderation, the significant increase in the volume of orders may offset the losses from reduced prices.

However, by using discounts too often, you’ll surely feel its impact on your bottom line – and the company’s perceived value.

But you can harness the powers of discounts and mitigate their potential damage by making them a component of a more comprehensive sales and marketing plan. Consider the alternatives we’ve shared in this article and select the ones aligned with your business’s core qualities and goals.

If you want to know more about how you can develop effective pricing policies and programs for your small business, speak to us! We can guide you into figuring out the best alternatives to discounts that your customers will appreciate.