Using discounts can be a good or bad tool depending on how you use it.
Over the years as a sales rep, I have heard lots of different reasons why producers wish to discount their prices:
Because raw materials and labor costs are high (on a per unit basis) when you get started, I sometimes hear from beginning gift or gourmet producers (my repping niche), “I will lower my wholesale price, when these start selling, then I can purchase ingredients more cheaply and pass along the savings.”
Or another favorite of mine:
“Buyers are not buying my XYZ product …. the price must be too high, so I will discount it!
Here is my short list of reasons to discount a product:
- When an inventory item is old and/or worn and you want to move the rest of them out of stock quickly (CLOSE OUT SALE).
- You are having a special introductory offer. You have several options to discount if a store buys X amount of goods, if they buy before X date, or if they buy the new product in conjunction with a package deal of your current line (INTRODUCTORY OFFER).
- You are offering a special discount at a trade show or craft show to attract new buyers (SHOW DISCOUNT).
Using strategies like these puts YOU in control of the sales process — not the buyer! Communicating, either by special flyers or signage, tells the buyer that this is a special deal that may not be repeated.
Willy-nilly discounting can send a poor message to customers and buyers.
My friends at the Arts Business Institute address this issue in their article: Does Discounting Hurt Your Art Business?
What message does discounting send to the customer?
- That you are willing to take less now, so you will probably do so again. They may then offer even less than your discount, hoping you will bend further. This not only undermines your profits, but it doesn’t make you feel good about making the sale.
- That your regular price is actually the discounted price. Then, they will only buy when you offer a “sale price.” That permanently reduces the amount of profits you earn.
- That you are not clear what your prices should be, which is a sure sign of an amateur. People want to buy from professionals, and as a professional, you should be able to defend your prices, and speak about the benefits to the customer.
- It tells previous customers who paid full price that they missed out on the “deal” that everyone is now getting…. They may end up feeling they should have waited longer to get a discount.