With sales events coming up on double-digit days, such as 10.10, 11.11, and 12.12, many businesses are rushing to offer discounted items to increase their sales. Sure, it makes sense to tap into these sales events hype, the benefits of which we’ve covered in the first part of this two-part series.
But should you offer discounts on every single sale day? Here are some cons you need to consider before hopping onto the double-digit sales trend.
What are the negative outcomes of discounting too much?
You might decide to offer discounts because you’re trying to clear your inventory for Quarter 4. Or perhaps you’re a new start-up wanting to increase your brand presence by advertising discounts once a double-digit sale day comes. But there are some clear disadvantages. Here are four to consider:
- The perception of your business’ quality suffers.
It’s straightforward. Many of us link higher-quality products and services with higher prices. That’s how prestigious brands like Apple, Samsung, Mercedes Benz, BMW, Louis Vuitton, and Tiffany position themselves as premium luxury brands. While the tech giants offer discounts on their products during special sales days, the cuts are never too deep. As for the luxury cars, clothing and jewellery brands, if there are even discounts, they are hush-hush and offered more as a gesture of good salesmanship.
Just like those big-name brands, if you want your customer to think of your products and services as exclusive, you need to consider how your brand image can be affected by discounts on every sales event. On the other hand, if you want your brand to be aspirational, your price has to reflect it.
The disadvantage of discounts is that price reductions devalue your brand image. Instead of strengthening confidence in your business, you’re inviting customers to doubt the quality of your products or services.
- Lowering your prices can lead to a price war.
Another major disadvantage of discounts is that they encourage customers to compare prices. When you discount your products or services, you are forced to compete with larger companies with a lower cost structure.
As a small business owner, you will notice whichever price you set, another company can always do it cheaper. Customers can quickly search through other platforms like Shopee, Lazada or Amazon for alternatives to your product. By comparing brands and prices, your customers can make a comparison. If these are everyday necessities or fast-moving consumer goods, then quality may not matter to consumers who prefer to purchase them cheaply in large quantities. By leading with discounts, you’re engaging in a price war where you have to lower your price repeatedly to move your product.
If you consistently time your business discounts for the last four months of the year, that means with every sales event; you’re signing up for a price war. As prices fall repeatedly and consumers become more price sensitive with each sales event, you stand a chance of decreasing sales rather than increasing them.
Unless you are anxious to get rid of your inventory and are okay with potential deep losses, it’s best to avoid a price war where you might not win.
- Lowering your prices kills your profit margins.
Here is an example of one of the critical disadvantages of discounts. If you start with a 50% gross margin and decide to lower your price by 20%, you need to increase your sales by an estimated 67% to keep your starting profit margin. That’s a considerable increase to keep your profit margin.
So the easiest way is to reduce your cost of goods. You can do so by cutting expenses or negotiating with your suppliers to give you a discount. But for small businesses with smaller quantities, this might be very challenging to obtain from suppliers. Therefore, if you choose to keep giving discounts, you will end up hurting your profit margin.
- Customers’ negative perceptions
Unfortunately, frequent discounts can cause some of your loyal customers to question whether your business is trying to take advantage of them financially. By offering incentives and discounts to a wider range of customers, you might come across as devaluing their loyalty and past patronage.
Moreover, regular customers who miss a sales event can become upset if they do not receive a discount after purchasing something from you. They might also feel they deserve one even though they haven’t made any purchases in a while (or at all) yet still expect one.
Discounts are not the only way to increase sales for Quarter 4
So what’s the verdict? While a double-digit sales trend is one way businesses can boost sales, it’s possible to increase your Quarter 4 profits by offering new products or creative promotions. For instance, you might notice major coffee chains such as Starbucks and Coffee Bean & Tea Leaf putting up limited edition beverages and merchandise when it’s nearer to Christmas. Such promotions give customers something to look forward to when visiting your stores, apart from just getting a discounted price!
Qashier presents an integrated solution to get you ready for Quarter 4
Whether you want to tap on double digit sales, or not, Qashier’s smart POS solutions are created to support merchants. Easily manage promotions so your staff can quickly apply relevant discounts to items. That means faster queues and happier staff, which improves morale all around.
Apart from that, Qashier offers multiple digital solutions, including QR code table ordering, table management (F&B), employee management, customer relationship management (loyalty programs), inventory management, data analytics, and cashless payments, in an all-in-one device.
Additionally, you’ll be able to seamlessly set up within 10 minutes without any need for technical expertise. It boasts a user-friendly interface that is simple for anyone to learn and use. If you require assistance, you’ll find 7-days-a-week responsive technical support from the team.
Qashier is also affordable, with prices starting from as low as PHP65/day, and this includes hardware, software, setup, training and 7-days-a-week local support.