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How and When Discounts can Harm Your Business

All successful business owners understand that promoting their business should always be a top priority in any industry, and while that might be true, a lot of them assume the best way to do that is to give out discounts for their products or services. Although placing discounts on everything might be able to drive more sales in some situations, it is not always the best strategy and their and there are disadvantages that you should consider before offering discounts. Before you decide to run out and slash your prices, understand some of the downfalls associated with this tactic, then make sure it is the right move for your company.

Hindering Business Growth

When you decide to get cut your prices, all you might be doing is just leaving money behind, making your overall business more vulnerable. If you still have a new and fragile business, it is always a smart choice to look over what exactly might happen once the promotion is over. Reducing the revenue per sale needs to be compensated by an influx of immediate and long term sales, or by being able to lower the cost per unit to the company due to the amount of sales that are being made.

If you are not confident that your business will end up ahead by lowering the prices, you could end up leading your overall company backwards and place it at risk.

Brand name

Branding your company, products, as well as services is another very important part of being a business owner. If you are trying to brand your products for being high quality and reliable, then handing out discounts might give the impression that they really are not that great. Consumers understand that quality products are more expensive than cheap and unreliable stuff, and they are happy to pay extra for the peace of mind that what they bought is top of the line.

So don’t sell yourself short because if people start thinking your stuff isn’t good, you will end up losing business in the long run.

Head to Head With Competitors

When you start cutting prices, not only do your customers notice, but so do other businesses that offer similar services. If you decide to start selling a certain product type for 25% off, another business might start lowering their prices even lower, starting a price war with you. If you are not prepared, you might end up losing the war in the end, and losing any potential business that you could have had if you had just kept your prices normal.

Unaltered Exposure

If your plan is to lower your prices to attract new customers, understand that it doesn’t always work. You might end up just making the same amount of sales but with less profits. If your future customers see that you are having a promotion, then you might end up making more sales up front, but then have a large decrease in sales which then averages out to your normal amount.

The bottom line is, don’t assume that lowering your prices will be a guaranteed way to get ahead. Understand how it can backfire and if you then realize it is not a good idea, look for alternative methods to achieve your business goals.

Filed in: Blog, Entrepreneurship

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