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The Pros and Cons of Online Discounts

Most shoppers are price sensitive.

Everybody loves getting a great deal. However, some people would rather pay more and get great service than pay less and be left to solve any issues that might arise on their own.

These are among the concerns you have to balance when you’re determining the pros and cons of discount pricing.

Others include…

Customer Loyalty

On one hand, discount prices are a great way to attract new customers to your ecommerce store. On the other, people who were brought in just by the price will go skittering away when it goes up—or if they see a lower price someplace else.

Meanwhile, 80 percent of the revenue of most businesses comes from 20 percent of their customers. If you’re going to build long tem success, you need to develop a cadre of loyalists who will shop you first and buy whenever you have what they need.

While discounts can be an element of your appeal, avoid making it the basis of your approach. Instead, tout your quality of service, variety of offerings, the speed with which you deliver and the like.


Price Wars

It’s easy to be lowest-priced source in any category, whether its cosmetics, furniture, ebooks or if you sell electronics online with a platform like Shopify. All you have to do is be willing to forego profit. Amazon is a good example of this. The company’s business model is predicated upon losing money on the retail side. It makes up the difference on the wide variety of services it offers in which it is the dominant player. Thus, you’ll never beat Amazon on price.

When they see you’re charging less, they’ll price you out because they don’t care if they make a profit. In all likelihood, you probably don’t have that luxury; therefore you’ll always come out a loser in any price war.


Perceived Value

Diamonds are far from being the rare substance most people consider them to be. What’s more, when you really think about it, they’re just clear rocks that reflect light in colorful ways. However, the DeBeers corporation controlled the mining and distribution of diamonds for years.

To convince people the stones were special, the company limited supply, raised prices and marketed them as being symbolic of love and lasting relationships. These efforts made diamonds seem special, less plentiful and therefore more valuable. But try selling one back to a jewelry store — you’ll see what diamonds are really worth.

The point here is value is all about perception. If you’re always discounting your prices, you’re training your customersto believe your offerings are less valuable.


Strategic Advantage

J.C. Penney has a retail history going back to 1902. Like many other brick and mortar retail operations, Penney found itself struggling to remain profitable going into the 21stcentury. It tried all of the usual tactics to remain viable. The chain offered discounts, coupons and sales, but was still struggling.

The board of directors then appointed a new CEO who came in with a strategy of everyday low prices. No coupons needed. No waiting for items to go on sale, Penney’s were always the lowest-priced offerings available. In addition to making it the leader on price in its category, this approach saved the company lots of money on printing coupons and mailers to tout weekly sales.

The idea tanked.

Penney’s customers were so used to the way getting discounts made them feel, they didn’t respond to the new approach—even though items cost less. There were no sales to brag about to their friends. There were no surprise discounts or victories to be gained by happening up on a coupon.

When you’re considering the pros and cons of discounts, it’s important to remember low prices won’t guarantee you a win. It’s far better to concentrate on the value you provide for your customers. There’s always plenty of room to raise prices with this approach. But no matter what you do, there’s always going to be a floor beneath which you absolutely cannot lower prices—and remain in business.


Bogdan is the founder of Top Design Magazine. You can find him in Bucharest-Romania so next time you want to drink a beer there and talk about web and stuff, give him a message.