Who doesn’t love a sale? But should you be discounting your products or services this season? In 1886, Coca-Cola inventor John Pemberton had so much trouble selling his new drink that his bookkeeper started handing out tickets for free samples. Pemberton was not happy about the extravagance. But soon after, Atlanta businessman Asa Candler, who bought the company in 1888, started sending out tickets in masse that could be redeemed for one free glass of Coke. By 1895, Coca-Cola was being sold nationwide. The world’s first discount coupon had done the trick.
Not all offers are equal
Not every sale or promotion is as successful, though. An enthusiastic Domino’s franchisee in Russia offered 100 free pizzas per year for 100 years to anyone who got the Domino’s logo tattooed on an easily visible part of their body. The promo was supposed to run for two months, but the franchisee had sorely underestimated what people were willing to do for free pizza. After just a few weeks, 350 people had turned up to claim their prize, and the promotion had to be shut down prematurely to avoid massive losses.
In another example, floundering American Airlines tried to make some quick capital in the early 80s by selling the AAirpass, a lifetime first-class ticket. It cost $250,000 and was quickly snapped up by 28 customers. Unfortunately for American Airlines, some of the people who bought those passes liked to travel a lot. In 2007, the airline discovered that just two of the pass holders were each costing them over $1 million a year in lost ticket sales, taxes, and fees.
In other words, when done well, a sale can help propel your business to new heights. Done badly, it could leave you worse off. Let’s take a quick look at the pros and cons of discounting your products or services.
Managed well, sales are beneficial because they can:
- attract new customers
- drive new sales
- encourage repeat business
- get rid of old or slow-moving stock
- increase customer loyalty
- revive abandoned carts
Managed poorly, sales are detrimental because they can:
- lower the perceived value of your product or service
- give the impression that your brand is poor quality
- create unrealistic price expectations
- hurt your profit margins
- enter you into a price war with your competitors
Should you go on sale?
To work out if you should offer a discount, and what kind of discount it should be, it’s a good idea to consider what you are trying to achieve. Are you simply trying to move old or unpopular stock, or are you trying to create customer loyalty? A larger, across-the-board discount might be appropriate to shift an item that isn’t selling, but an exclusive member discount would do more to generate loyalty.
What is the nature of your product or service?
If your business is something that is affected by seasons, or regularly updated with new, better versions? In that case, it’s expected that your product might go on sale if it is going out of season or you are releasing an updated model. Discounting in these circumstances is less likely to devalue your brand than if you randomly cut the price.
If you work out a clear discount strategy, define your goals, and know when to stop, your sale is far more likely to generate successful results for your business.
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