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5 reasons discounts are dangerous

Discounts have a clear role in helping to clear stock or to act as short-term promotions. (We’ll cover some clever use of discounts in a later blog.) However, they do need to be applied carefully, because they can cause quite severe problems.

#1          They reduce customer loyalty (the likelihood of future, repeat business)

  • Discounts attract price-conscious, fickle customers
  • And they remind customers to shop on the basis of price, not quality or service
  • So they make your customers much more price-aware (and less loyal)
  • Discounts give the same reward to price-sensitive, fickle shoppers that your loyal, regular customers get
  • So you could even lose some of your best customers who have just been
    reminded to buy based on price and who might feel foolish for ever paying full price
  • And losing your best customers means less money in the till

#2           Discounts are easily copied

  • If you can afford to drop your prices, your competitors can too
  • And they might even beat your best price
  • And you’ve just reminded your customer to buy on the basis of price…

#3           Discounts can lose more money than they generate

  • Discounts have to be at least 10% to have an impact
  • A 10% discount needs to increase sales by well over 10% just to break even
  • And they often ‘give money away’ to customers that planned to buy, anyway

#4          It can be difficult to get back to selling at the full, standard price

  • Customers rapidly become accustomed to discounted prices
  • If constant discounts become an expectation, full-price sales can disappear

#5           They can even cause your business to fail

  • If discounts have made the bulk of your customers more price-sensitive, it’s much more likely you’ll get caught up in a price war.
  • And there aren’t many winners in a price war…