The Dark Side Of Discounts - How It Is Negatively Affecting Your E-commerce Business

Updated: Apr 25, 2019

Have you noticed how shopping culture has changed in last few decades. From around the corner stores to big shopping malls to large retail online stores to niche e-commerce stores, we have seen it all. But a common marketing strategy that is increasingly becoming common these days is offering DISCOUNTS.

Discounts are believed to be key drivers in generating more sales and more revenue in return. Discounts are all around us, and we as customers are now conditioned not to purchase if we are not getting a deal or discount. Even there are even multi-million dollar businesses that have built their business model around the concept of discounting. Take for example, Groupon. Groupon's operating model is pretty simple. It sells deals and discount coupons to customers and earns revenue as commissions for every customer referred to the merchant. While the person who signs up to receive those daily deals might not be thinking of it as a discount, but rather a special promotion, in reality, they’re purchasing a product / service at a lower price, making it a discount.

But while this strategy may work for those e-commerce giants like Amazon, Flipkart or Walmart, in most cases, it won't work for you and especially if you are into B2B model, you should never give discounts.

Generating the new customers or sales isn't the real problem, it's what that discount in price represents. Here are five reasons why discounts are bad for your business and you should never discount your products or services:

1. Bad Precedent

When you offer a discount, your primary focus is on price rather than your product or service. Whether you offer it for their first engagement or tenth, there is no going back. As soon as you lower your product's price, your customers will start expecting the same thing again and most likely, won't purchase your products at normal price. If the only competitive advantage you have is price. your business might be in big trouble. Re-evaluate!

2. Profit-Cuts

Running a successful business is difficult. And with increasing competition, it is even more important that you hold on to as much profit as you can. Offering a 50% discount with very less profit margins is nothing but a bad business. Sure, it would bring more leads but in order to fulfil the same revenue goals you will have to sell twice as many products. Do you have time or manpower to do that?

3. Price Wars

Offering discounts can result in price wars with your competitors, and big companies will always win this war because they have enough financial backing to run these campaigns for longer duration. For small businesses just getting off the ground, this is a zone you wouldn't want to enter.

4. Lower Perceived Value

Most people value things based on price. But as a salesperson, you would not ask a prospect to buy your products just because it is lower in price. Customers should see why your products are better than the discounted ones available in the market. You haven’t done your job effectively if you haven’t demonstrated to your prospect that what you’re selling can truly add value to their life. If you go in with a discount in hand, you’re throwing the value out of the window. And while they still might buy from you, they’re not going to place as much value on it as they most likely would have before.

5. You will Engage Wrong Customers With No Brand Loyalty

Discounts and daily-deals attract mostly the price sensitive customer with no brand loyalty, and to an extent, the bargain addicts. Many small businesses decide to ride the bargain wagon with the hope of  attracting new and returning customers, and justify the high cost of these discounts as marketing costs. But, can your small business justify the high marketing cost of this channel with little to no return on investment? And most importantly, are you attracting your ideal customer, the one that will be loyal to your brand?

What To Do Instead

Value should be your number one priority, always. You need to focus on how your product or service can add value to your prospect’s business.

Know your target audience, reward those who shop with you regardless of the coupon or the deal. Getting them on your best customer list pays them back for their loyalty.