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To discount or not to discount: what should your small business do?

There are a wide variety of aspects to think about when you consider discounting your product or service. It is important to focus on the end goal for the discount. In addition, you should have a good idea of your gross margin, mark-up and break-even point. If you are not aware of these when you consider discounting your product, you could be running at a loss. Another consideration is what type of business are you running? Here are the benefits and risks to discounting your product or service.

THE BENEFITS

Create an awareness for your product or service

By creating a short-term discount, you can raise awareness for your product without a big marketing budget. If you are trying to break into a new market you can discount the product for a couple of weeks and see how the market reacts to your product. You can also encourage word-of-mouth marketing by offering a discounted rate.

To move old stock

Do you have new and better stock coming into your shop? Then you may want to consider discounting old stock. This will make sure that you have space for the new stock when it arrives. You can also offer a discount when you have bought seasonal stock and know that it will be out of style by the following year.

THE RISKS

Devalue your product

When you offer a discount and especially if you do it often, you may start to devalue the product you are offering. Your customers will wonder why they have to pay a premium for a product or service if you offer a discount. If you are in the service industry it may be even more harmful to you, as many people consider a higher price to mean they will receive a better product.

Providing an inferior product

Another aspect to watch out for is not to cut corners to the detriment of the product you are offer. If you offer a discount but you cut down on the quality of the materials you use to make the product then not only will you be endangering your product but you will also harm your reputation. The customer will have buyer’s remorse and instead of praising your company will warn against the shoddy workmanship you offered and they will forget all about the discount you gave them.

Teaching your customers to expect a discount

If you offer a discount on a regular basis you will condition your customers to expect the discounted price. This may even lead them to wait until the discount is on again instead of purchasing the product for the original price. They will also expect the price to be lower than the original price you made.

What do you do then?

You need to get your product out there and you want to run at a profit. One of the ways to create more value for your product is to offer an added benefit. This could be a free installation with the purchase of a computer or a free blow wave with a haircut. By adding extra value to your product people will be excited about using your product and be more willing to spread the word. You could also give your client a referral discount should they tell their acquaintances or friends about your service or product.

Weigh up the risks and benefits and then implement the best discounting strategy for your product. Remember to focus on why people want to buy your product or service rather than how much. This will encourage your customers to stay close and will keep your competition at bay.

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