January 3, 2024

Are Year-Round Discounts and Promotions Bad for Your Business?

Marketing

Discounts encourage your customers to buy more. So if you run discounts all the time, it should mean more sales, right? 

Not so fast.

Running year-round discounts is dangerous and can build a negative reputation around your brand.

So what should you do instead?

Below, we'll look at the dangers of running year-round discounts while showing you how to avoid relying on price cuts.

Why year-round discounts and promotions are a bad idea

As tempting as it might be, there are some major potential consequences of running year-round discounts:

  • It lessens the perceived value of your product
  • It squeezes your profit margin 
  • You train customers to expect and wait for discounts
  • You attract less-than-ideal customers
  • You risk getting into a price war with competitors

It lessens the perceived value of your product

The main problem with year-round discounts is that they lessen your product's perceived value. In other words, customers might think that your product isn't worth its regular price, so why should anyone buy it?

It squeezes your profit margin

Running discounts all the time can also eat into your margins and reduce total revenue. 

And once you’ve run discounts for extended periods, you’re also sabotaging your future opportunities to maximize profit margins. This is because customers will expect the same price going forward.

You train customers to expect and wait for discounts

Let’s say you're running discounts for eight months out of the year. Why would a customer buy your product or service during the remaining four months? All they have to do is predict when the next promotion will be, wait for a discount, buy it then, and save a few riyals.

This is another big problem that frequent discounts create. It encourages your audience to wait for a sale, which is the opposite of what you want. You want customers to take immediate action.

You attract less-than-ideal customers

When you run regular sales, you build a reputation for being a discount brand, which can attract less-than-ideal customers. There are seven primary types of customers:

  1. Bargain hunters
  2. Researchers 
  3. Lookers
  4. Motivated buyers
  5. Unhappy customers
  6. New customers
  7. Loyal customers

Although you want to attract all these customers, bargain hunters could make up a significant part of your audience if you’re running discounts all the time. Since these customers will only buy from you during promotions, your sales may drop when the price returns to normal.

You risk getting into a price war with competitors

By leading with price and not setting yourself apart from the competition with value, it's easy to fall into the trap of cutting prices.

For example, if you run a 10% discount, your competition will do a 20% discount, forcing you to respond with a 25% discount. It's easy to see how this can destroy your margins and force your business into a race to the bottom.

How to move away from price cuts

Now that you know why you shouldn’t be offering year-round discounts, let’s discuss how you can get away from price cuts:

  • Be crystal clear and confident in presenting your value proposition
  • Offer discounts on occasion
  • Sell products in bundles

Be crystal clear and confident in presenting your value proposition

The best way to avoid price cuts is to lead with value, not price. 

You can do this by presenting your value proposition clearly and confidently. Your marketing should promote your product value in solving customer problems while overcoming any objections your target audience may have.

Offer discounts on occasion

Be aware that offering discounts isn’t bad. They can actually boost revenue and help you attract new customers. Just don't run discounts all the time as it stresses your business and lessens the perceived value of your product or service.

To strike the right balance, it is recommended to only run discounts a few times per year. For instance, you could offer discounts for the holy month of Ramadan, Eids and national days. You should also consider running deals for White Friday.

Sell products in bundles

A more effective alternative to running year-round discounts is to package multiple items and sell them at a lower price. 

This encourages customers to spend more, and you can run these specials all year as it doesn't undermine your product or service’s value. You're actually adding more value as customers don't have to buy items separately.

Avoid the temptation of year-round discounts

It might be tempting to run discounts all year round, but it can be a bad idea. 

It devalues your product or service and squeezes your profit margin. What’s more, your customers will simply wait for promotions before making purchases. By having a reputation as a discount brand, you will also attract bargain hunters.

Instead, be crystal clear and confident in presenting your value proposition as it allows you to set yourself apart from the competition and charge higher prices. 

But remember that discounts aren’t bad—you just want to offer them on special occasions. Implement promotions strategically and if you want to provide more value to customers, use discounted product bundles.