When we think about increasing sales, most of us consider running a discount or special promotion as the first option. Lower prices means more people will buy, right?
Yes – in theory.
But there’s more to it than that. (Isn’t there always? *sigh*)
So first let’s go over why you should stop discounting your products.
Why You Should Stop Running Discounts on Your Product
Devalues your Brand
Stand behind the value and work you put into your product. By running frequent sales, you’re communicating the message that your product isn’t worth the price you’ve asked for and cause doubts about your value – why are they lowering prices? Is it not selling well? Does that mean it’s not worth that price? Is it even worth this new price?
Sets Customer Expectations – “I’ll wait until their next sale”
UGH. This is one of the biggest killers. Customers are smarter than we give them credit for. Plus, hello, we are all customers. Consider how you feel about constant sales? Yes you love them, but yes, you’ve probably come to expect them from some retailers. If you run a sale every few weeks, you know how often those customers will look to purchase from you? Every few weeks, during that sale.
At my last company, we tried a new huge dollar off coupon and it worked amazingly well; if customers spent ‘x’ amount, they’d receive 50% off their total purchase. However, after running for a few months on and off, we had customers, store managers, my own family (!) asking when the next coupon would be. After only a few months, they’d already come to expect it and were just fine waiting until the next one!
Customers may feel your regular pricing is a scam
We’ve all shopped at those stores that are running 60% off sales, save 75%, or buy one get 3 free. (I know because I’ve worked at one), and we all know that the only people who go there without a coupon or sale are suckas. Yes, suckaas. Because you know there’s always a coupon available. So do you really believe when they ask for full price? No.
You’ve worked hard for your products and brand – don’t give customers a reason to question if your pricing is fair or if you’re just laughing all the way to the bank. There’s a reason the saying “you get what you pay for” is so popular.You've worked hard for your brand - don't give customers a reason to question if your pricing is fair. @theshopfiles Click To Tweet
New Customer Discounts or Surprise Sales may frustrate loyal customers
Don’t turn your back on loyal customers to earn a few more sales! As a loyal customer who shops your new product and checks in every few weeks, it can be frustrating to see new customer discounts or a surprise 25% off sale when you just made your purchase the day prior.
A lower price does not necessarily mean a rise in sales volume. Before running a discount, you should be aware of three things. Your current sales trend, profit performance and the unit increase required in order to break even.
In the above example, your average weekly performance is on the left. You make $1,500 in gross margin by selling 100 units for $20. You decide you want to increase sales by running a 25% discount, so items are now on sale for $15.
TO EARN THE SAME REVENUE:
At your new $15 sale price – you’ll need to sell at least 133 units (33% increase) to make the same revenue; however your gross margin is now less at $1,335 or 66.7%.
TO EARN THE SAME PROFIT DOLLARS:
Money money in the BANK. This is the number you ultimately should be concerned with. Its your take home, your re-investment in the business, your cash flow to keep things rolling. With a 25% off discount, you’d need to see a 50% increase in sale units just to earn the same amount. And as noted, that 50% increase in sale units also comes at the expense of your time to manage, pack, and ship those additional units.
Questions on the math? Check out this post on Retail Math 101 or leave a comment below!
Now, of course I’m not suggesting that discounts never work; but before throwing discounts around, determine your intent for the promotion:
Does it make sense to compete based on seasonal timing, like Christmas shopping?
Are you discounting to celebrate a special shop announcement or milestone?
I should also note that these reasons don’t apply to merchandise you’re looking to clear out through a clearance sale so you can make room for new inventory. Clearance or final sale prices have a clear message as a one-time final sale, instead of back & forth high-low pricing.
Also, remember to take the above break even points into consideration to be aware of your current sales trend and if you’re receiving a big enough boost in units sold to offset the profit dollars you would normally earn. If this doesn’t make sense or you have any questions, please leave a comment below! And always remember…
“Don’t go chasin’ sales dollars, please stick to the profit and the pricing you’re used to”
And if I hadn’t lost you yet – now. Now you’re gone.
Okay, so now that I told you to discount cautiously… what’s a girl to do to help drive sales? Well, let’s look at a few alternatives to discounting your products.
Alternatives to Discounting Your Product
Rather than discounting a single product, create a bundle or package offer that provides an incentive to spend more for a bigger value and save by purchasing together. If you usually sell candles for $10 each, try 1 for $10 or 3 for $25. You can also cross product categories to create more specialized bundles, such as offering a candle + bath wash for $20; when normally the candle is $10 and bath wash is $15.
This is one of my favorite ways as it’s not requiring the customer to make an extra purchase, but you’re truly providing additional value to what they already want. I know I sometimes hate it (irrationally) when a store offers me buy one, get one free – but I often really don’t want a second item, I’d just love something like free shipping! Few ideas to increase value: offer a free gift with purchase, free shipping, discounted or free expedited shipping, or free custom selection such as adding a monogram if applicable.
Re-negotiate cost with vendor or supplies
Did I already pick a favorite? Because as a buyer, negotiating would actually be my favorite. Look into ways to lower your cost and expenses put into a product and offer it back as a savings to your customers that you earned on their behalf and are passing along to them.
Show Your Value
This goes back to much of what I talk about everyday – provide value, educate your consumers, bring them into your process and explain the value:price relationship in ways your customer cares about. Are you an eco-friendly brand with a similar customer base? Walk them through a few examples of why your product is a better value [less waste disposal, energy savings, …I’m obviously not knowledgeable on this haha… help me out if you are :)] and therefore commands a higher price point.
Offer a free trial or money-back guarantee
Know who stands behind the product they offer? People who 100% believe in their product’s value and know their worth. This works especially well when paired with a high-end product as customers believe the value of the free product is consistent with the value of the higher end item. (source)
Shop Talk: What are your thoughts on discounts? How often do you use them in your shop? Let me know below!
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