There are points where every business may decide that they are going to run a promotion or sale. The reasons behind the promotion vary from distress sales and inventory liquidation to customer acquisition or to increase customer loyalty. All of these reasons can be valid at times. In other times sales or promotions are not the best approaches. Although the immediate cash flow or influx of traffic might be enticing, the longer-term unintentional adverse effects can permanently damage your business or start you off on the wrong track in the case you are starting a new business.
If you are a discount or dollar store and your value proposition is cheap, go to town! Your job is to let everyone know you are the place to find a bargain. When they come to your premises, customers are expecting you to provide cheap, and you deliver.
On the other hand, if you are a higher-end clothing store, running deep discounting sales or Groupon-type promotions can damage your reputation and hinder future revenue. Contemplate these two ways deep discounting can work against future business.
Deep discounting can leave existing clients feeling undervalued and disrespected.
On Tuesday, a regular customer buys a sweater for $200. On Wednesday, he sees that the same sweater is on sale for 50% off in your store. It is impossible to conceive that this will not leave a bad taste in their mouth. The perceived value of the sweater has dropped 50% before they have had the chance to wear it. Many retailers have lost long-term customers for this very reason.
Deep discounting doesn't work long-term to entice new customers.
Yes, it’s an opportunity for new customers to come in and try your brands at a discounted price. The chances, however, of the same customer coming back and paying the regular price are almost non-existent. Not only are you catering to a customer that is not going to be a long-termed client, but you are also eroding your margin, resources, inventory and sales opportunities to a more appropriate target market. This situation is further exacerbated when they tell their friends who are looking for the same discounts. You are often obliged to offer the same discount or leave them disappointed as a first impression.
Consider why people buy from you in the first place.
Retailers with higher-end pricepoints tend to have a more sophisticated clientele. They tend to invest in the customer experience and you as an expert in your field. When they buy from you, they are confident that you will be there tomorrow, next week, next month and next year if anything goes wrong. This confidence in your longevity is what often drives them to buy from you. These loyal clients are often the bread and butter of your business. They are the ones buying items in the offseason and the ones that refer your business to their friends and colleagues.
Consider the overall optics on your business.
Deep discounting can send unintended messages into the community that your business is in distress, which can erode the confidence your existing customers have in you. Your competition can further perpetuate this information to their advantage. Seldom will the clients ask you for details directly; they are more likely to come in less frequently or not at all. People naturally want to support and be associated with successful businesses. It’s human nature.
New customers might hesitate to buy from you, not being 100% sure you will be there in the future if something goes wrong.
Before you consider running a promotion, reflect on why you are doing it.
If the reason is to raise temporarily needed cash, carefully consider the short and long-term optics and take steps to avoid the pitfalls before they occur.
If your objective is to acquire new customers, explore every other option to entice them to your business, except price.
Before the promotion, refine your communication.
Take the time necessary to make sure your message is clear, concise and company-wide before you invite new customers to experience your products and services.
Every new client
is a clean slate.
Carefully considering the implications and optics of running price-centric promotions and deep discount sales can save you and your business from substantial grief and necessary backpedalling down the road. Always refer to your overall marketing strategy and long-term business objectives when considering any promotion.