Discount Pricing Strategy – Advantages & Disadvantages of Discounts

Discount Boost and Ruin Sales

Businesses often use discount pricing strategy to increase retail sales. It is important to remember that with this strategy, you are trying to cut costs and stay competitive.

Discounting the price of your products is definitely an effective way to increase sales and market share, and large-scale retailers are have the ability to demand lower prices from suppliers in order to make a discount pricing strategy effective, but what about smaller retailers?

We’re going to look at the ways in which discounts can both boost and ruin sales for retailers.

How Discounts Pricing Strategy can Boost or Increase Retail Sales

First things first, you need an effective discount strategies and tactics in place if you want the short-term increase in traffic to make enough of an impact for your company to gain long-term benefits.

The price of your products directly affects your profit from every sale, so you can understand why it’s one of the most important parts of a marketing campaign.

Increase Short Term Sales

If you’re in the midst of a slow season, discount pricing can be effective to increase retail sales for a short period of time. This is a good strategy to try around the holiday season when customers are on the hunt for a great deal on high-quality items.

Be sure to advertise the promotion on your high-traffic pages as the sales volume can make up for the losses you’d normally expect when reducing the price of products.

Help Move Old Stock

The longer your product stays on the shelves, the more it costs to carry, so it’s no good hanging on to dead stock that’s just not shifting. The best thing you can do in this situation is discount that stock to get it moving and reduce the carrying costs while increasing your turnover.

Introduce New Stock

You can create demand for a product even at the very beginning of its life cycle simply by offering a price discount. This is an effective strategy for penetrating the market as it will create a buzz while driving demand upwards and attracting new customers to your store (who will probably by the discounted items with full price items).

If the products are high-quality, the customer will see its value and will likely be willing to pay full price for the item at a later date.

Reward Loyal Customers

It’s nice to be nice, and customers love feeling like their money and loyalty are appreciated. Reward your repeat customers and offer them discounts once they reach a certain spending limit as a means of persuading them to stay loyal to you (as opposed to your competitors). A great example of this coffee chains who offer a free hot drink for every 10 bought. What’s more, if loyalty is low, you can win customers over to your brand by discounting: offer money off their next purchase and you’re likely to retain those customers.

Gain Competitive Advantage

You can use discounting to gain an advantage over your competitors and gain leverage in the industry by setting your price lower. Customers see more value in your brand when you set competitive pricing.

How it can ruin sales

While low prices might drive sales for a short amount to time, it can be hard (not impossible, just difficult) to build loyalty, and it’s definitely worth thinking about whether the strategy is worth the payoff.

Remember that customers are often loyal to their preferred products and might not opt for a different brand, no matter how discounted it is.

You should consider product positioning before selecting a discount pricing strategy. Setting items at a lower price can make customers skeptical about the quality of the products and assume that low price = low quality, especially if it comes to brands they are not familiar with. This is especially important if you’re an eBay or Amazon seller as a low price could indicate that the item is a fake or knockoff.

The longer you pursue a discount price strategy the higher the chances that your products will be perceived as low quality, and the chances of your customers turning to competitors will increase.

Although low prices may drive sales for a short amount of time, they ultimately don’t build customer loyalty. If a lower priced product comes into the picture, you’ve lost your market share.

Your competitors are capable of matching or even beating your prices, and once you’ve set the price low, it can be difficult to raise the price, especially if the product is perceived as low quality.

It’s important that, as a retailer, you use a discount pricing strategy wisely and only occasionally. While the odd discount here and there which, for example, rewards your loyal customers or introduces a new product can be effective, it’s not viable to stick to this strategy long-term as it can only be detrimental to your brand.

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