For an entrepreneur who always tries to improve his business, providing discounts could be a good way to increase his profits. The discounting technique to lure consumers has been a very old technique. But is this technique that reliable? Let’s have a look:
Sales Aspect:
Advantages: In order to give a temporary boost to short-term sales, different types of discounts are made available to the buyers. Most businesses tend to offer for instance, direct discount on the selling price or perhaps give away coupon codes which can be availed for discounts. The coupon codes do act as a factor for customers when they prefer that commodity over others. Perhaps the major plus of this strategy is that it helps turn short-term sales into stronger long-term revenues.
Disadvantages: However, selling at a discounted price actually means selling at a lesser profit. If an entrepreneur offers large amounts of discounts, it would mean that his profit is minimized. For the long term, if the pricing is not done appropriately, it could rake in lower profits and ultimately losses to the company. More, in the long run, the piling up of the continued losses might get difficult to handle.
Product aspect:
Advantages: Discounts are generally provided when a business wants to clear out the old stock for the new. Of course, there are many other reasons why businesses offer discounts, including wooing customers in a season of high rush, a renovation sale, a clearance sale, among many others. Whatever the reason, providing discounts does have its pros. In many ways it is a win-win situation for both. The entrepreneur, for instance, gets enough space by clearing out the old stock and procure new finished goods thus presenting them for sale to consumers. This can prove to be very beneficial to the business as the seller can get a reasonable enough monetary value for the stock – especially for those old stocks which were not being sold. For consumers, the choice of products becomes larger and they can buy a product of their liking in a comparatively lesser value than other companies.
Disadvantages: During the months of discounts or sales, there are frequent complaints from customers regarding the product functionality or the product quality. This happens especially in those discounts where the business wants to clear out its old stocks. The products often tend to be defective or of inferior quality.
Well, eventually offering discounts could also be perceived that your products are inferior. At the same time, it’s important to be competitively priced and affordable to your target customer.