When business is tough, often times they’ll choose to cut prices, hoping that discounting will pull in some quick wins. But discounting has a dark side and one which long-term can really have a negative on your brand equity and the consumers you attract. Here’s why.

You see consumers don’t see discounts as a discounted price – they see these as the product’s true value.  For years now we’ve been educated to think this way by too many large retailers having sale after sale, a different discount strategy every week – which in fact teachers consumers to wait for the sale price and become brand disloyal – buy wherever there’s the lowest price.

The key is twofold – know your margins so you know what your price (including profit margin) should be, and know the market and your competitors so your price remains competitive.

If you’re in a highly competitive market the key is to find your unique selling proposition – why your brand is different from others, and promote this.   This is the reason consumers will shop with you over your competitors - whether this is the exemplary service you provide, or some other value proposition which sets you apart.

HERE ARE THE 4 KEYS TO BUILDING VALUE WITH CONSUMERS:

  1. Build Trust
    Consumers buy from companies and brands they trust.  In a marketplace where businesses come and go, consumers look to family friends and online reviews to determine where they’ll send their hard earned cash.  Start by building trust and building your online reputation so your customers become brand advocates and openly recommend you.
  1. Reward Loyalty
    Past customers are more likely to buy from you again if it was a good experience, than cold customers who’ve never dealt with you before.  Re-targeting past consumers with a new offer or a bonus such as free shipping, enables you to make easy sales to those who already know and trust you.
  1. Use Remarketing as part of your online mix
    Remarketing keeps your brand top of mind, and special offers on products consumers have already been considering is a good way of getting them back on to your site to buy.  Remarketing is available to any organisation with a website, simple back-end code will allow you to identify online targets who have already been to your site, and deliver advertising offers to them when online.   It’s a great cost effective way of promoting yourself to a semi-converted audience.
  2. Zig when they Zag
    Good entrepreneurs always take advantage of market conditions – in economic slumps there are opportunities to take advantage while your competitors contract and stop spending or cut services to clients.  Unhappy customers are the best and easiest to convert over to your brand, so keep an eye on the market and tap into their displeasure – it could pay off.

Let’s look at the figures – the table below shows the sales volume increase you will need based on the discounts you make, and your gross margin.

As an example, if you cut prices by 5% and your margin is 25%, you need to sell 25% more sales volume to make the same margin you’re making now.  Think about your marketing strategy and how many extra people you would have to pull in just to make the same as you’re making now, and that’s not including the marketing costs.

Discounting-can-kill-your-brand-statistics.jpg

Now let’s look at a successful brand, consistently in demand who also never discount – Apple.

If you want one, this is the price.  With the release of iPhone 7 this week there’s a backlog of a month for pre-orders.   Not a bad marketing strategy.  It starts with good products, and good backup service.

In the end the key is to keep an eye on your customers’ behaviour, identify and reward the behaviours you want, and avoid discounting despite its temptation to give your bottom line a quick boost.  The money you’ve spent crafting your brand can be eroded in a heartbeat.