The Dangers of Discounting your Products and Services

The Dangers of Discounting your Products and Services

How to sell your stuff all year without risking its overall value

discountingproductandservicesAs the holidays and end of the year approach, consumers are deep in discount land. With the advent of Black Friday, retailers have to offer discounts on merchandise in order to stay in the game. Consumers expect to pay less than full price for everything. While this does skyrocket sales for companies, it has also created an irreversible trend. What businesses may not realize is that this can be true the rest of the year, too.

It is tempting to use discounts to increase sales throughout the year, but doing so can have catastrophic effects on your bottom line. While your product or service may sell like hotcakes during a promotion, you’re teaching people that your inventory is not worth its regular price. If they know they can get it for $50, they don’t value it at $75. Your brand value has eroded, and there could be no turning back.

J.C. Penny experienced this firsthand in early 2012. It announced that it would stop using “fake prices” in conjunction with discounts. Rather, it lowered the prices on everything and discontinued coupons. For example, rather than pricing a sweater at $30 to sell for $22 with a coupon, that sweater just cost $23.  Before this, less than 1% of sales were from full-priced items, and almost ¾ of merchandise was sold at half off. While an “every day low price” strategy works for Wal-Mart, it was a disaster for J.C. Penny. The idea should have made people happy – after all, the new prices meant they could get “discounted” merchandise year-round without searching for promotions. However, customers were already so attached to coupons that they didn’t see the value in the lower-priced merchandise.

As consumers, we are being taught that we don’t have to pay full price for anything anymore. Look at Groupon, Crowd Cut, Living Social, and the like. These sites drive a lot of people to a lot of businesses, but users don’t often convert to longtime customers. An industry like massage therapy, let’s say, should benefit from these super deals. They get people in the door, introduce them to the benefits of the services, and aim to forge a longtime relationship between client and therapist. However, most massage businesses do not garner repeat business from these promotions. The people using the coupons would rather find the next $25 deal (as there are a ton of them) than spend $75 on a massage with a trusted practitioner.

On the other hand, Massage Envy’s model works consistently. Rather than depend on promotions, Massage Envy offers services at lower prices than its competitors. It also promotes its membership program. Yes, membership does equal discounts on services, but the value of the membership is that people can afford regular treatments. It hinges on a benefit to ones lifestyle, not just the pocketbook.

It is the added value that one should keep in mind when selling products or services. If you decide to boost your business with discounts, you may be stuck in a rut your entire career. That doesn’t mean you can’t entice consumers with a deal, though. You just want to add value rather than cut prices.

For example, if you own a housecleaning business, you can run a promotion where the services are still full price, but you will throw in floor waxing (or some other add-on) for free. Amazon does a great job adding value with both its Prime membership and also free shipping for orders over a certain amount.  Apple stores offer free workshops on how to use its products. Some HP printer ink packs come with free photo paper and a creativity guide. The idea is to reward consumers for buying your product without compromising the worth of your brand.

In some cases, like retail stores at Christmas, you do need to offer the discounts. If you’ve been doing the coupon thing for a long time, like J.C. Penny, it may not work for you to switch from a discount sales model. However, if you’re new enough that you haven’t taught consumers to expect a lower price tag, you can take advantage of a value-driven sales model.

Of course, the perception of quality will affect your overall strategy, too. Your packaging, signage, and displays should all be uniform with the price point of your item. Using custom, eco-friendly vinyl for pockets, tag holders, pouches, display holders, and promotional gifts will convey quality to consumers. Vinyl Art can help you present a brand image that is synonymous with value.  Contact us today at 800-569-1304 or sales@vinylart.com.