Has your revenue stream become more of a trickle than an actual stream? Many retailers will be tempted to resort to discounts in this situation. However, while discounted pricing can boost your conversion rate, it also lowers the return on each conversion.
Discounts also reduce your average order value, which can cause revenues to decline further. Sure, there are times when discount pricing can pay off, but there are also times when it can hurt you a whole lot more than it helps.
With that in mind, does discounting actually makes sense?
Discount pricing is typically accomplished by dropping the prices you ask for your goods or services. However, discounting too much or too often can eat into your bottom line revenue and do major damage to your brand. That’s why it’s essential to understand the fundamentals of discount pricing strategies, including the advantages and disadvantages accompanying them.
Value vs. Price
Strategic ecommerce discount pricing can spearhead an upsurge in ROI. On the other hand, when executed poorly, it can cannibalize your profits. Here’s a major consideration: Do you primarily compete on price or on quality? If your business deals in commodity items where price wars are common, frequent discounts probably won’t hurt you.
If you sell your furniture online with Shopify, or any other products for that matter, carry some items you can afford to use as loss leaders. That way you can apply your discount strategies and tactics on an item-by-item basis, rather than your entire inventory. This will leave you room to offer services and benefits your competitors cannot. Remember: focusing on building value is almost always more ROI-effective than lowering prices.
Training Customers to Wait
If you discount too frequently, you’ll train customers to wait to buy when the price is reduced. You’ll end up looking like the store that’s been holding a “Going out of business” sale for years. Eventually, you’ll lose credibility. Customers will stop feeling a sense of urgency. They’ll quickly figure out that all they have to do is hold for the next discount.
Racing to the Bottom
Discounts can also be the starting point of a downward pricing spiral that may eventually damage your ability to sell the product at full price. Further, it’s all to easy to get pulled into a price war with the competition.
The disadvantages of discounting are serious enough that any ecommerce manager considering launching a discount campaign should think well on the idea before proceeding.
Once your company’s reputation moves from quality and service to low price leader, you’ll be experiencing a whole new set of problems.
Perhaps management doesn’t really want to discount, they just see no other way of responding to the advertised price cuts by others. Here’s how to hold your ground. First, highlight your value proposition. What differentiates you? Why is buying from you their best choice – price aside? When others lowball to gain business, your best bet may be to hold your ground and point out the obvious: low price seldom means the best value.
You can also focus on providing a better customer experience. Be more helpful than competitors. Provide better service. Let your audience know you’re in it for the long run, not to make a quick buck. Discount pricing is just one way to obtain customers, and it’s usually not the best way. As you can see, there are a number of ways to shore up your sales without resorting to dropping your prices. Again, discounts do work in the short term, but they can have negative long-term consequences. Employing alternative ecommerce methods to boost sales will put you in a much better place.