What is Discounting?

Discounting is reduction in price from the usual price of a product or service.

Discounting might at first seem like a jolly good idea to draw in customers who will buy in larger quantities and increase your profits but it cannot ever be seen as a viable long-term strategy and should only really be considered as a short-term "fix".

 

Discounting can Benefit Your Company

GET RID OF UNSOLD GOODS

If you have products that would perish or become obsolete in the very near future, and if the demand is not high enough, you probably don't want to hold onto them. In this situation discounting is preferable to selling nothing.

 

REWARD LOYAL CUSTOMERS

If you have customers that have done good business with you for a long time, you might consider giving them some special treatment just to show gratitude and maintain healthy relationships.

Discounting acts as a reward and you will build some great partnerships, leading to increased future orders.    

 

ECONOMIES OF SCALE

If you have a large order that allows you to achieve economies of scale or receive a discount from your suppliers, you may consider passing part of this gain onto your customer in the form of discounting.

If discounting can be linked to greater volume sales and lower unit costs for your business, giving a discount does not necessarily mean hurting your margin. 

This is a common practice in B2B sales.

Here are some ways to use discounts:

  • Seasonal sales - a discount on seasonable products can substantially increase sales when the selling season for those products is just starting or almost over.
  • New products - introductory lower prices will start word-of-mouth advertising in motion to spread the new idea to other customers quickly.
  • Senior citizens and students - special interest groups can build more volume. Discounts will encourage them to refer their friends
  • Break into a new market - when you discover a new target market for your products or services, lower prices can help you acquire new customers quickly.

However, even when you know what type of discount to use it might not always work out as well as you expected. In many cases you will still run into pricing leakage and money-left-on-the-table problems.

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