Why discounting can kill your small business.
by Geeta Nadkarni on Dec 07 at 6:00 am
While special offers have their place, regular discounts can cripple a small business. Here’s an alternative plan that will help boost your sales without driving down your prices.
The cycle goes something like this: Excited entrepreneur opens a clothing boutique and there’s an initial rush of customers impressed by the gorgeous, locally sourced, handmade designs. Or perhaps there isn’t. Either way, pretty soon, things get quiet. The entrepreneur wonders if it’s the price. After all, there’s the recession and all. Plus there are so many big box stores selling made-in-China tops for a quarter of what he charges.
The entrepreneur announces a 20% off sale. A few people bite. But not that many. Then a 50% off sale. “It’s just to get a bit more traffic in the door,” the entrepreneur tells himself as he eyes his wafer-thin margins. More action this time, but now the customers who actually stuck with the entrepreneur through the slump and paid full price are annoyed because they feel ripped off.
Pretty soon, the entrepreneur can’t sell ANYTHING at full price because everyone is expecting the 50% off sale. The entrepreneur can’t afford these discounts but he has no idea how to convince clients to pay the big bucks he once planned to charge.
Here’s what that entrepreneur didn’t know: you don’t want to play price wars with big business, because big business will always win. This is true whether you’re a clothing store competing with chains like H&M or a photographer up against those mall insta-photo studios.
But how do you appeal to a clientele that has been trained by big business to expect deep discounts?
Simple. You do the following three things:
1. Differentiate yourself:
If all other things are equal, you’ll always have to compete on price. So you need to figure out ways to create an enhanced experience for your client. i.e. provide them with something big business can’t do. For example, if you’re a clothing boutique owner like our infamous entrepreneur, you might offer an in-store alteration service and rarer sizing options. Or clothing that appeals to a specific demographic that isn’t well served by the mainstream market. Pick your niche and then service the heck out of it!
2. Educate your customers:
Anticipate your customer’s hesitation and answer the question, “why should I pay more for this?” ASAP. Customer education is an incredible opportunity for small businesses and an area where most could do better. For example, a clothing boutique might offer workshops on how to co-ordinate colours and accessories. It should talk up its designers and focus on how buying local is so much better for the planet.
3. Adopt a value-added strategy:
Instead of offering a discount, is there a way to bundle the primary product with a service that would cost you very little? For example, a hair salon could offer a $20 deep conditioning treatment free for a limited time to customers who book a more expensive service. The treatment doesn’t actually cost the salon much and it gives clients incentive to book an appointment quickly.
Does this mean that a small business should never have a sale? What do you think?
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