Biz Features

The Danger of Discounts

by . August 24th, 2014





Sjoerd Lammers
We’ve all probably gone through it. I know I have. You’re selling your services for the first time or close to it. It’s probably to a family member or neighbor because who else would buy? Then they ask for a discount for a multitude of purposes: exposure, cause they’re close to you, cause it’s a new product, etc. And that there is extremely bogus.

Discounting your product can be tempting. You see it all around you and it looks like it works. Uniqlo uses a discount rotation system on all its products to reel in customers each week. Hordes of people lose self control during Black Friday. Similar crowds can be seen at End-of-Season sales.

And although they work in very specific circumstances, discounts are generally a bad thing. Kinda like drugs. No. Actually a lot like drugs. Discounts are addictive. You long for the quadrupled sales you had that one day and your customers start expecting them from you. And although you profited a lot that day, it leads to a very inefficient system. You could be making more with the same resources.

This is why most shops do discounts not to improve sales, but rather do get rid of old and cloggy inventory. That’s what discounts are great at.

When customers expect a discount from you, they become driven by the hope that someday it will return. Thus, they will postpone their purchases and most likely forget about buying at all. Let’s go back to the example of Uniqlo. There are times that I catch myself postponing to buy new clothes from there because they’re not discounted this week. Maybe they will be the next.

(Note that I’m not bashing the brand. I love them. They sell great products.)

Discounts also decrease your brand’s value. Lower prices as a regular scheme are almost always seen as a sign of incompetency and a lack of self-confidence. Thus, it takes more effort in branding to achieve the same amount of prestige and authority.

In this sense, free products vastly superior than discounted products.

Hold. the. phone.

Yup. That’s right. By setting a lowered price for a product, that product is locked in to that figure. You’ll notice that people will start to believe that the perfect value of the item is the discounted offer. But by offering the same product as a free bonus for the purchase of a different item, limiting the time the offer is available, and pushing the idea that the two items are completely separate, you leave the customers to think about its real value. And a lot more often than not, it will be higher than the discounted rate.

By forcing the customer to act fast within the limited time, you are adding value to the product rather than decreasing it which a discount will do. By offering it for free, the only basis people have of judging your product is the quality rather than the price.