Discounting as a pricing statregy- why it may backfire?

by Ashvini on August 25, 2010

in Business

Unless you want to be a discount leader, I don’t think that your business is going to build any long term competitive advantage by just offering discounts on the products or services. Discounts are normally meant to jack up sales in a short term or attracting customers to new launches.
It has been a tendency these days however to offer discounts all round the year. While discounts do bring the customers to your shop, but using this tool forever has its own disadvantages.

  • Discounting strategy can only take you down
  • If you are locked in a battle with your competitor on the lowest price offering, you can only go down from there. Because of the fact that your competitor is equally strong, it can match your offerings bit by bit. There is no way now you can price your product on a upward revision.

  • Discounting can dilute brand value
  • Too much discounting can compel your customers to look only for the price tag while ignoring anything else that you offer, for e.g. customer service, good quality products or any other added value. Your brand will be tagged more with discount brands rather than prestigious ones. Think Mercedes, BMW or any other. They do not offer discounts at all. Others if they do, do it very infrequently. Also the customer might start suspecting that you were overcharging them previously.

  • Discounting gives easy way off to your sales force
  • Discount is the least work for a sales force. Just offer a % off. There is no innovation necessary, no product placing strategies required, no building long term value. Do not allow the sales force to have this easy way out as it is detrimental to your business in the long run.

  • Discounts reduces margin, leads to lower employee satisfaction
  • If your discounts cut from your margins, it is bad thing because they you will have lesser money to spend. Your employees will get lower salaries, lower raises and they might become disgruntled.

I have nothing against discounts, but as too much sweet causes diabetes, discounts causes long term value and brand deterioration. Build on your strong points rather than looking for discounts only.

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