Discounting vs. Devaluing

Posted On: / By: John Davies

cutting a red ticket discount with scissorsDiscounting can be a great method for small businesses to bring about great returns, if correctly put into practice. However, discounting used incorrectly can cause great misconceptions about product/service worth that leads to devaluing. Many factors come into play that can determine the success or failure of discounting: regular pricing strategy, number of clients, stage of business development, etc. However, there are a few standard pieces of advice to follow when discounting business merchandise or services:

  1. Use discounts to show appreciation.

Discounts should be given as a reward to clients and customers who have shown loyalty to your business. Discounting for other reasons, such as to retain customers, can spoil them into expecting or demanding discounts – and suddenly you have devalued your entire product line. You do not want to build a base of customers who focus only on low costs rather than quality.

  1. Offer discounts to select customers.

Many businesses routinely offer discounts to customers who have stuck by their company over a lengthy period of time. Others give discounted benefits to new customers in the spirit of welcoming them into the fold. Whatever the case may be, discounting works best when it’s bequeathed to a select group. Not only does this make them feel special, it also helps you retain your positive revenue stream. Other reasons for discounting include the number of sales to a client, payment punctuality, or positive reviews and referrals.

  1. Announce discounts discreetly.

Because you are only offering discounts to a select group, maintain a level of discretion when making and applying that offer. To reduce any potential animosity, ensure that other customers understand why the discount is offered to a select group.

  1. Standardize discounting procedure.

Make sure that all employees are taught how to approach and respond to customers asking for discounts on merchandise and services. For example, Salesperson A should not offer deeper discounts than Salesperson B.

  1. Keep the bottom line in mind.

Never discount past the point of what it costs to acquire or produce what your business offers, whether it be a product or service. The rare exception to this rule is selling discounted overstock in order to make room for more desirable new goods that will make up the financial difference.

  1. Consider alternative perks.

Discounting is not the only method of showing customer appreciation. It may be more financially feasible to offer free shipping, a free warranty or repair, or even a small discount on their following purchase.

Discounting is just one example of small business design and implementation. There are many factors to consider when you are entering the field of entrepreneurship. For example, consider hiring an experienced business broker from the Sunbelt Network to advise you further. A broker can act as your voice of reason when it comes to purchasing a business. An experienced broker will provide insight into current market conditions and guide you through the first steps of running your own small business.

After obtaining his MBA, John began his career at PriceWaterhouseCoopers, the international accounting and consulting firm, and subsequently joined Progressive Corporation, a large U.S. based insurance company. John was a Division President at Progressive and subsequently became the CEO of a New York based private equity investment company. In 2001, he founded MMI as a platform investment company and MMI has subsequently acquired 15 additional companies.

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