What is discounting?
Discounting is selling the product or service at a reduced price for a restricted length of time.
It is used to:
- attract new customers
- increase how much current customers buy, or
- promote a particular good or service.
Pros and cons
Discounting can be advantageous as long as a clear marketing strategy is drawn-up and followed. It can help your business attract new customers and place you in a strong market position.
On the downside, many customers may not continue buying when the price returns to normal. You need to be sure that your product is strong enough to encourage customers to continue buying – even after the promotion has ended.
Make sure you factor in a plan to encourage your customers to come back. If you can afford to do so, offering a loyalty enticement that rewards customers is a good way to retain and build your customer base. The aim should be to encourage your customers to get into the habit of buying the particular service or product from your company.
It is also vital that you don’t over extend yourself. While the aim of discounting is to bring in more customers you must make sure that you have enough resources and staff to deal with the increased business. Failing to handle the increase in customer volume can be fatal for the reputation of your business. It is also worth placing a cap on the number of discount offers you sell so that you keep within your budget.
Types of discount
There are a range of discount options available to businesses, such as:
Straight discount: This can type of discount can be done online or in store and involves the price of the product is reduced for a limited period.
Buy-one-get-one-free: This form of discounting entitles the customer to a free product or service if they buy one at full price.
Mixed promotions: This is when more than one type of discount is offered at the same time and offers the customer greater choice in deals and will help to attract a wider customer base. This can be done online on in store.
Loyalty discount:This type of discount rewards customers for loyalty (either in terms of the length of time they’ve been buying from you or in the volume of their custom) and is a useful way to retain your customer base and create positive customer feedback.
Introductory discount: For new customers a reduced introductory rate is offered to entice them to buy from you over your competitors.
Early payment discount: For customers who pay before the payment deadline, an early discount payment can be offered as a reward.
Two-for-one: If the customer buys one, they will receive another free.
Your discounting will only be effective if people know about it. How you promote the discount depends on what product or service you’re offering and who your target customers are.
If you have an active Twitter account with a substantial number of followers, this could be a good way of helping your promotion ‘go viral’, especially when used in conjunction with Facebook and other forms of social media. For B2B businesses, traditional adverts might be more effective, as well as targeted emails and letters. Whatever your promotion, you should try and keep the messaging around it as targeted as possible.
An increasingly popular way for companies to offer discounts is via group-buying sites such as Groupon, Living Social and Wahana. These sites offer businesses the chance to sell a one-off deal at a discounted price over a 24 hour period.
Make sure you set targets for what you want to gain from your discount, so you can measure the effectiveness once the promotion is over.
Keep the discount simple. Customers will generally prefer an offer that is easy to understand and that doesn’t include complicated small print.