These days, if you aren’t offering a discount of some kind (or at least the appearance of one), you might not be selling much of anything. Pervasive discounting by businesses both big and small has caused buyers to demand deals on anything and everything.
In the midst of all this, how can business owners and entrepreneurs craft a financially sound strategy for offering discounts? The knee-jerk reaction is sometimes to cut prices willy-nilly. But don’t rush into a discount strategy. It pays to start with a plan, making certain the discounts you offer will actually help grow your business long-term, rather than shooting yourself in the foot.
No matter what, be sure to monitor and measure the results of a discount strategy. If you sell more but still lose money, it’s not helping your business.
Here are eight keys to successful discounting:
1. Make the discount relevant
Devise an offer that not only will appeal to your clientele, but also one that jibes with how those customers buy from your biz. For example, a “buy one get one free” offer might appear strong on the surface. But if you sell something that customers wouldn’t typically buy multiples at the same time, it’s not likely to work well.
2. Commit to your campaign
Whether you use social media, search engine marketing, postcards, coupon packs, email or other ads, frequency and consistency count. Prospects may see an offer but not respond right away. Consumers look for an offer that’s appealing and has value, and may respond immediately. But with big ticket, high-commitment items they are likely to take more time to consider the offer and wait until they need to make the purchase.
3. Balance strong discounts against your bottom line
Structure discounts that get customers in the door, but still make money for your business. “Look at your product mix and look at your margins,” says King. “Because if you don’t, that’s where you’re going to get burned.” Evaluate carefully what you can reasonably offer, and don’t be afraid to exclude specific items that don’t fit the discount model (see tips below on crafting a profitable offer).
4. Set goals and measure your results
Balance results with objectives. Was your goal to generate new customers? Drive more phone calls or website visits? Promote a new product or service? Don’t just file away coupons you use to promote your discount. Take a little time to analyze the transactions. Did customers merely buy the discounted items or did they spend more while they were at your store or website? Well-planned discounting typically (though not always) prompts customers to spend more.
5. Don’t forget to prepare
Some businesses that offer a discount for the first time aren’t properly prepared for the response. If you attract customers to try your product or service, but you’re not able to serve those customers at your best level, you’re shooting yourself in the foot. Be sure to inform your staff about your discount strategy, and provide any information they need about coupons or offers. Customers may have questions, and you’ll need the answers.
6. Don’t treat discount buyers as “second rate” customers
Make every customer feel wanted, welcomed and appreciated. Training your staff to handle promotions is just as important as the offer itself. The reason is simple: Treating people well is the key to repeat business after the discount deal is gone.
7. Don’t target only new customers
Offer extra discounts for repeat business: One way to turn new customers into repeat customers is to establish loyal customer discounts of some type. Loyalty cards (buy 9 get the 10th one free), birthday discounts and referral rewards are several examples.
8. Avoid hot water
Be careful with the wording of your discount and on-sale offers. Clearly label what’s “on sale” and what isn’t. If you advertise discounts of, say, “Up to 50% off” the Better Business Bureau suggests that at least 10 percent of the items be offered at the maximum amount off.
Profit-boosting tips for crafting a discount coupon offer:
- Know your marginal cost: Deep discount offers work best for businesses with low marginal costs, where the price of producing an additional “unit” to sell, over and above fixed costs is low.
- Be patient: Discount offers can hurt short-term profits but pay off later as new customers return and pay full price.
- Block multiple purchases: Research shows that profitability drops greatly when customers are allowed to purchase multiple coupons. Disallow multiple purchases if possible (although there’s nothing to stop buyers from setting up multiple accounts to buy your coupons).
- Gather purchase data: If possible, find out if customers who bought your discount coupons have purchased from you before at full price. You might start by simply asking them. Remember that coupons can re-active old customers who’ve forgotten about you or moved to a competitor
- Consider fees: Stiff pay-to-play fees charged by Groupon and others also curb coupon profitability. Groupon, for example, takes up to half of the coupon price, although the fee drops to 10 percent if your offer only appears following user searches and not in Groupon’s daily email.
- Query customers: Capture as much information about coupon customers as possible, including names and email addresses, and follow up with further offers.
- Cross-sell and up-sell: Coupon customers might buy other full-price items as well. To facilitate this, be sure to specifically offer them related items.
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About the Author: Daniel Kehrer, Founder and Chief Content Officer of BizBest Media, is a senior-level leader in digital media, content development and online marketing with special expertise in startups, SMB, social media and generating traffic, engagement and leads. He holds an MBA from UCLA/Anderson and is a passionate entrepreneur (started 4 businesses), syndicated columnist, blogger, thought leader and author of 7 business and financial books.