As a small business owner, you may have thought about whether you should put your product or service on sale (also known as offering a sales discount). While “Sale” signs are everywhere and sales discounts and promotional pricing are common in nearly every industry, it can be hard to know whether a sale is right for your business and how to execute one effectively. We’ve put together a few factors to consider in helping you determine whether and when to put your product or service on sale. Here’s what we’ll be covering:
- When a sale is beneficial
- When a sale is harmful
- General factors to consider in determining your sales discount strategy
When a sales discount is beneficial
Before deciding when or whether to have a sale for your product or service, it’s important to understand when a sale might be helpful or harmful for your business goals. Here are a few situations when running a sale could benefit your business.
As a strategy to drive short term sales
Perhaps the most obvious reason to have a sales discount is that it can drive sales in the short term by providing an incentive to buy (lower prices).
Promoting a new product or service
Sales discounts can also help create interest in a brand new product or service – providing a limited time promotion like a sale always helps draw attention to what’s being promoted, so it can be a great way to highlight a new offering.
Attracting new customers
Because sales draw attention to your business, they can also attract new customers who may otherwise not have known about you, and might become long-term fans who continue to buy from you and recommend you to others. Sales are also a great way to reengage the interest of past customers who previously bought but haven’t engaged with or purchased from your business in a while.
Targeting specific demographics
Sales can also be a great way to target specific demographics or parts of the market you’re looking to attract through creating promotions for that specific demographic. An example of this would be providing a limited time student or senior discount.
Why a sales discount might be harmful
It may seem like the visibility and increased interest that can come from a sale is always a good idea, but sales discounts can be bad for your business and brand when not executed strategically. Here are a few situations where running a sale may NOT be a good idea. Keep in mind: you can absolutely run a successful sale and not run into these situations – the key is to do it with a strategy that ensures your sale is in line with your goals.
It can lessen the perceived value of your product or service
At its core, pricing is intended to communicate value. That means that discounting your product or service without a proper strategy can decrease its perceived value in the eyes of potential customers, making them less likely to want to buy it.
It can come off as a lack of confidence in what you offer
Discounts can also project a lack of confidence in your product or service in some situations by making it look like you don’t value your own offering. Potential customers may get the impression you don’t believe you’ll be able to sell the product or service at its full price, or that you couldn’t and were forced to lower your prices to make sales.
It can reduce your profit margins
Most obviously, a non-strategic sale can slash your revenue, since you need to sell more than normal to make the same amount of money you would at regular price.
It can set false price expectations
If sales aren’t executed strategically, they can also set false expectations about how your product or service should be priced. Customers may start to see your sale prices as the “normal” price and be unwilling to pay full price post-sale.
What to consider in creating a successful discount strategy
Your business goals
The most important factor in crafting a successful discount strategy is tailoring it to your business goals and getting clear on exactly how the sale will support them, rather than having sales just for the sake of it or in an effort to boost profits without a plan.
Ask yourself what your goals are (e.g. are you targeting a new demographic, hoping to boost profits for a short period of time, or launching a new product?), and when creating your discount strategy make sure you’re able to articulate exactly how the sale will help you achieve those goals.
Understand your market
Another key factor in ensuring your discount strategy is successful is understanding the buying, selling and pricing patterns in your market by looking at your competition and market research. If your discount strategy is in line with what’s expected and works for your market, it’s more likely to be effective.
Weigh the pros and cons
When you have a clear understanding of the potential positive and negative effects of a sales discount for your specific business, you can make a strategic decision about whether it makes sense to proceed. The clearer you are on your business goals and your target customers, the easier this will be.
When crafting a discount strategy, ensure you’re clear on your business goals and how the sale will support them – this will help you run sales that align with your desired outcomes. Use this guide as a reminder of what to keep in mind when you’re considering implementing a discount strategy.