Growing a small business can be difficult. Some are lucky enough to enter niche markets without much competition. But most have to contend with larger competitors from the get-go.
Larger competitors have more resources, bigger cash reserves, and more options at their disposal for marketing and merchandising their products. This can put smaller competitors at a significant disadvantage.
But the difficulties don't end there. Small businesses have to give customers a reason to choose them over competitors.
One way many small businesses try to get ahead of the competition and attract new customers is promotions.
Promotions come in all shapes and sizes, but discounts are the most common. They’re very easy to implement and they’re almost universally applicable, regardless of product or industry.
Unsurprisingly, discounts are a popular choice with small businesses looking to get a leg up on their competitors.
A survey of retailers conducted by Software Advice revealed that 99% of respondents used discounting.
Discounts are a great business tool if used correctly. They’re an effective way to encourage spending and they have a variety of clear benefits:
But, like any tool, there’s potential for negative outcomes if discounts are misused. Small businesses should be particularly aware of these potential negatives.
Timing plays a key role in discounting. The most effective discounting methods are time-sensitive or dependent on some other variable. All too many brands fall into the trap of continuous discounting, placing discounts on products for long periods of time without any strategic plan. This bad habit is even more dangerous for small businesses.
Continuous discounting can hurt a brand in many ways. Firstly, it can erode brand image and reputation in the long run. There are a couple of reason for this:
Continuous discounting can also damage sales. This is because:
So, all in all, continuous discounting is a slippery slope with pitfalls that can catch out businesses of any size. This is especially true with small businesses. But it’s not the only discounting method small businesses should try to avoid.
Seemingly arbitrary discounts will also hurt a small business's image in the eyes of consumers. The most successful discounts are complemented by contextual factors, such as seasonality, demand, or product availability. These additional factors give discounts greater appeal for consumers, while also providing additional opportunities to increase profits.
For example, a brand can set up a special discount on a particular product based upon current trends in their region or country. This could be a cultural event or even a TV series that spurs a sudden increase in demand for a product.
Consumers will view a brand that senses trends and reacts accordingly in a much more positive light than one with generic promotions.
So, small businesses should remember the following when using discounts:
For more information about promotions, including discounts, loyalty programs and everything in between, check out some of the downloadable content in our Content Library.
Discounts lose their appeal if they're overused, so think about contextual factors that will make your discounts more impactful. If you're a small business, don't rely solely on discounts to bring customers through your doors.
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