7 reasons why discounts are not sustainable
Discounting prices is one way to increase market share. And sure, it works. Consumers love a bargain. Short-term, you’re likely to see an increase in sales. But growth is about more than just sales and market share.
A holistic view also accounts for profit and brand equity – long-term, regularly offering discounts could damage both, making it an unsustainable method for meeting targets.
1. DISCOUNTS SQUEEZE PROFIT MARGINS
When price is your main differentiator, your only option for continually winning out over competitors is discounting your product further – contributing to a downward price spiral. But when repeatedly relied on, discounts reduce profit margins and negatively impact your business’ profitability.
2. DISCOUNTS UNDERMINE DIFFERENTIATION LEADERSHIP
Discounts shift consumers’ focus from the unique value of your offering to the price, leaving your brand vulnerable to cheaper competitors. When every other brand in your market offers discounts, refusing to do so might be the only way to stand out.
3. DISCOUNTS REDUCE PRODUCT VALUE
Price integrity is a strategic tool that signals the value of your offering. By reducing your product price, however temporarily or intermittently, you permanently lower the perceived value of your product.
When price becomes your main differentiator brand identity is sidelined.
4. DISCOUNTS PUNISH BRAND LOYALTY
By framing your offering in terms of price rather than value, you ignore the priorities of loyal customers (your ideal customer persona). Not only that, by abandoning price integrity you betray loyal customers’ belief in your product’s value and instead train them to wait for the next price drop.
5. DISCOUNTS CREATE THE WRONG VISIBILITY
Discounting product prices appeals to discount shoppers focused on finding the ‘best deal’. But if you want to target consumers concerned primarily with value over price, you’ve missed an opportunity. You could even alienate those who consider higher price points a benchmark of quality.
6. DISCOUNTS ERODE TRUST
If you repeatedly offer ‘one-off’ discounts or extend discount promotions, consumers stop trusting your brand. What’s more, offering discounts can create a negative perception of your business. And since pricing contributes to brand identity, price inconsistency puts your brand’s positioning and ethos into question.
7. DISCOUNTS CREATE NEGATIVE ASSOCIATIONS
Brand associations are factors that create positive or negative feelings toward a brand. When price becomes your main differentiator, performance and brand identity is sidelined, its positive associations diminished.
Here’s what you need to know about running a successful reward-based sales promotion – from how to write your terms and conditions, to making sure you’ve got the resources for fulfilment.
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