Maria Peloponisiou~ 5 min Reading time | 02. Aug 2019
A pricing strategy is an essential element of every lucrative business. It directly impacts the profit a company makes. A great pricing strategy should help meet the business sales objectives, enhance brand perception, and present the most excellent profit point for the market. Therefore, it is crucial to understand the different pricing strategies, such as offering discounts, and when to implement them.
When considering how to price a product or service, a business owner should consider various factors such as production cost, supply, and demand, profit margin, competitive research, consumer behaviors, among others. Setting the right price is a balancing act. A discount price will stimulate sales but may not always be ideal since the business may not make any profits, and clients may perceive the fee drop as an expression of the products’ actual value. A high price, on the other hand, will see fewer sales and lock out the budget-conscious consumers.
Therefore, it is essential for business owners to know everything about pricing strategies and how to implement them successfully. This article will delve into a tried and true model used by all kinds of enterprises: the discount pricing strategy.
Discount Pricing Defined
Discount pricing is a technique where items are offered at a reduced cost. An example of a discount is a bag sold at 50% off its usual price.
Types of Discount Strategies
Discounting has been in the retail market for quite some time. Some of the trustworthy discount strategies include:
1. Loyalty Member Discounts
Loyalty discounts are a great way of showing your loyal customers that you value them and encourage them to buy more often. When a client spends a certain amount or makes a certain number of purchases, they get a discount. The discount can be on any goods or services in the store. Using this strategy can help you sell more products and thus make profits.
2. Quantity Discount
In this strategy, you offer clients discounts when they buy goods in bulk. This kind of discount is especially useful for business-to-business purchases since most businesses purchase products in large quantities. For instance, if you sell office supplies, you could offer a discount for customers who purchase 15 or more boxes printing paper.
3. Seasonal Discounts
Regular fluctuations characterize businesses. There are seasons when goods are purchased more and other times when they are purchased less. For instance, warm clothes sell more during winter seasons than during the summer. Therefore, seasonal discounts are offered on goods that are out of season to get more people to purchase them. These discounts are more appropriate for customers who purchase during off-peak seasons. You can also make a discount during holiday seasons such as Christmas or Easter season to attract more sales.
4. Cash Discounts
Cash discounts, such as early payment discounts, are offered as incentives for buyers who make payments within a specified amount of time. Those who pay before the due date are offered this type of discount. For example, an electric supply corporation can provide a discount for customers who pay their bills before the deadline.
5. Promotional Discounts
If you want to increase sales in your business, consider offering a promotional discount. These discounts are usually provided at the end of an items’ life cycle. Examples of these discounts include buying one get one free offer and percentage off certain items.
Advantages of Discounts
Companies utilize discount pricing strategies for reasons such as:
Lowering the prices of goods will help your business meet or exceed your sales target. Discounts attract potential buyers for other items in your shop since people will look around to see what you offer before making purchases. For instance, if your clothing store offers discounts on dresses, customers will come to your store for the discount but will also purchase other items from your store.
Attract more customers
Everyone loves a great bargain, and they are likely to spread the word to their friends and families about it. Introducing price drops for your goods and services will build a buzz for your brand; therefore, raise awareness and attract more customers.
Boost your reputation
An enterprise that offers price cuts to specific groups of people, such as the elderly, may improve its reputation. Such an enterprise shows its effort to help people. A lot of people consider businesses as money hungry, so any deviation from this view helps boost the business reputation.
In addition to improving sales, discounts may also help save money for your business if the cut entails payment methods. Debit and credit cards result in additional fee charges to process, which means that your company loses money in comparison to cash payments. Offering discounts to clients who pay with cash instead of credit cards will save money for your business and customers.
Dispense older stock
Obsolete goods clutter your space and can be expensive to store. Product discounts will help you dispense of old stock and create space for new items.
Disadvantages of Discounts
The perception of your enterprise’s quality will suffer
High-quality products and services are more expensive than low or medium quality products. Therefore, it is the expectation of many that prestigious brands should charge more for their brands. One of the disadvantages of discount pricing is that it may devalue your business image.
Discount pricing can lead to a price war
Discounts prompt clients to compare prices. As a small enterprise owner, when you lower the price of goods and services, you are forced to compete with larger companies that have lower cost structures. Whatever amount you set, someone can do it inexpensively. A simple search online will lead your customers to cheaper options. You cannot in this war against bigger competitors for long. You may be undercut at some point.
Discounts reduce your profit
With discounts, it is possible to end up not profiting much. While the discounted prices may be for people who would not have bought, you could lose the profits from customers who were going to buy regardless of the cost.
Thus, it is essential to understand the impact that discounting has on your business and choose the right strategy for it. Look at how your clients value the offer, seasonal events, or the product’s life cycle, which influences the purchasing decisions. In addition, consider the pros and cons of all the strategies to choose the best one for your business.