How to Give Discounts the Right Way
As anyone who has worked in marketing knows, it's not as simple as: discount a product sell more units. If you implement a discount badly you may permanently damage the perception of your product or service's value, in the minds of your customers.
When it comes to discounts not all products are equal. It's easier to make mistakes with service offers and non-physical products. Physical products have more of a set value in a customer's mind. It is therefore more likely for customers to think of the discount on a physical product as a good deal.
Don't let your clients think about why you are offering the discount
If at all possible you should tell your customers why you are offering a discount. If you don't, they will wonder whether there is something wrong with the product or whether they are being tricked in some other way. A good example of this would be an end of season sale at a clothes store. The clothes are being sold off cheap to make room for the new stock.
It is also possible to stretch your reasoning a bit on products that aren't a good fit for this tactic. For instance, say you are selling a digital information product. You can say something like: "I have sold 10 521 copies of this product over the last 3 months. I feel that I have made enough profit for the work I put in, so I am offering a discount to reward my loyal followers on Twitter / Facebook". What you are doing is giving the customer a reason why you are discounting the product and you are letting them come to the conclusion that it's a great product that has sold many copies.
We feel bad that the volcano trapped tourists in our country, so we are giving you a discount.
Don't give the discount too early in the product's life cycle
You need to sell a product at full price for a while to establish the value of the product. So, when is too soon? I would say not in the first 3 months. When I see a product discounted earlier, I just think the marketers have run into some kind of trouble moving it.
Scarcity is a powerful tool in a marketer's arsenal. It can really push a customer from thinking about buying to buying a product. You can combine scarcity and a discount by giving a discount for a limited number of products or for a limited amount of time.
Don't advertise discounts to customers who recently bought the product
This can happen when you send a discount offer to a mail or email list, that has customers who have already bought the product. I know that I have gotten upset when this happened to me and I don't want my customers to be angry with me. By carefully managing your email list you can avoid this mistake.
I recently watched a report on Sky News about stores that claimed discounts dishonestly. They would do things like increase the price of a product with 15% for a short while, then reduce it with 25% and claim that it was 25% off, when the discount was in fact only 10%. They also reported on a large furniture chain that would permanently claim that a product was discounted, never having sold the product for any other price.
That is the kind of press you don't need. It's just not worth tarnishing your brand by being dishonest.
Use the discount to attract customers, then sell them more products
A good example of this is back to school sales. The seller advertises a few back to school items at a discount. The seller knows that when a customer comes in and buys these products, they are very likely to also buy the other school products they need. The other products that also get bought are where the seller makes their profit. It is of course hard to put a specific number on it but when JCPenny, an American company, changed from a discounting to a stable low cost strategy they lost 20% of their sales.
The online equivalent of this tactic would be to capture a customer's email address so you can keep marketing products to them.