It’s not uncommon for businesses to use discount codes as a way to seek new customers or promote new products. In fact as many of 53% of millennial shoppers look for coupon codes when shopping online according to Retail Me Not. While large commercial retail set ups can account for regular discount offers in their margins, those who have smaller businesses will struggle to stay afloat with a regular discounting strategy.
This is why it pains me to see craft businesses continually discounting to try to attract new sales, or to kick start new online shops.
Today on the podcast we are going to explore how regular discounting is killing your business and what you should be doing instead!
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Back to today’s topic…
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How regular discount codes will crush your business
Regular use of discount codes can have a negative effect on your business growth and health and here are six reasons why;
It increases your customer’s expectation that you will offer future discount codes – If your customer gets the idea that another coupon will arrive in a few weeks, or a months’ time then they start to rely on this source to shop with you. In other words, they will start to only buy from you during the time frame of your latest coupon, because why pay full price?! This means that you never make full margin on any of these sales even if your customer becomes a regular purchaser.
It eats away at your profit margins – If you aren’t making full margin on your products on a regular basis then you may not be able to buy new stock, pay bills, pay yourself, or find the funds to reinvest as you grow.
It doesn’t increase your turnover – Most regular discounters put a blanket ‘x’ percent off on their online stores, in an attempt to encourage sales. I especially see this in those starting out. What happens next is that you make a few sales and those sales are more than likely one product purchases. It doesn’t necessarily encourage your customers to spend more with their discount. So, when you look at your turnover after the sale finishes you are often disappointed you didn’t make as much money as you’d have liked.
It devalues your brand positioning – regular discount codes will ‘bench-mark’ your business at the lower end of the market in your customers’ mind. This can be a really bad thing for craft businesses, especially those who are aiming to pitch themselves as a master craftsman by hand producing their products.
Let’s imagine for a moment that you are a customer of an artisan producing handmade soap with a full retail price for a large bar of £5.50. You notice that the artist has a 25% discount coupon code on their website, giving you £1.38 off and making the bar of soap you have your eye on just £4.12. Wow, that’s so much cheaper than anyone else! You buy a bar to try it out. It arrives and you are in love with the smell and it seems to last for ages – you want more.
A month later you notice that the same artist has a 30% end of season sale and a month later there’s another coupon for 25% off again.
This is great – you can buy all the soap you like it seems and never pay full price! Not only that but it makes them the cheapest handmade soap maker out there!!
In my opinion what this does in your customer’s mind is tell them that you are cheap. They stop considering just how skilled you are at producing cold press soap that can take 6-8 weeks to cure. They stop thinking about how much you must know about the essential oils you use, and they stop considering you an artist.
In fact, it may be true that because you are similarly priced to a boutique high street commercial brand, that there is no more ‘value’ to handmade than that of factory-made in your customer’s mind.
I would say that is a crying shame to spend all those hours on your products and learn all those skills to lose any respect your customer should have for your work.
It becomes difficult to raise your prices – If you are using discount codes regularly, I believe it can be much harder to raise your prices without losing customers. That’s not to say that you can’t rebrand yourself and reposition yourself, but the regularity of sales you had and the associated customers who won’t consider paying your higher prices, will have to be replaced with new customers who perceive your business differently, and this takes time, which can crush a business.
It can show desperation and you can look like you are going out of business – There are two ways regular discounting can come off as a bad impression to your customers; firstly, your customers could think that regular discounting is the act of a retailer desperate to make sales. In this case they might ask themselves, ‘why they should buy from you?’ Or, ‘is there something I need to know about the quality of their work?’
Secondly, I believe that regular discount codes can make it look like you are going out of business. In this case it can be off putting, because customers might ask themselves, ‘will I ever receive what I buy if they are going under?’
Regular use of discounts can have a big impact on customer perception and your business’ financial health. My advice is to avoid hosting regular discounts.
How to grow your sales and promote your products without discounting
Here’s what you should be doing instead to promote your business and gain new sales;
Create product bundles – Let’s look at the soap maker again. Say you put together a seasonal bundle of 3 soaps for £15 (individually priced at £5.50). While you are still offering a discount to your customer, you are encouraging a higher spend in order to get the discount. So, whilst there is a hit on your product margin, you are increasing your month’s turnover. This is a great way to increase you overall monthly profit and you haven’t lost too much money off singular products as a result.
Top tip: make sure you relook at your product costs. Can you renegotiate material costs in order to make more margin on these bundled items?
Offer something free in the transaction – Free shipping, or rush shipping… even a free gift. The concept of ‘free’ is a big winner with customers, in fact shoppers are more likely to accept free offers within transactions than they are in paying less for the original item using a discount code (according to the HuffPost).
Top tip: make sure that your ‘free’ element is cost effective. You don’t want to give away too much money with each sale as this effects your overall transaction profitability.
Start a loyalty programme - Loyalty programmes are great at encouraging return custom and introducing it at a time where you are seeing more sales to your shop will not only encourage new customers to sign up, but make those existing customers all the more happy to shop with you. Loyalty programmes don’t need to be expensive to run and you can include caveats for when the points customers accrue can be used (just make sure it feels enticing to customers, otherwise they won’t sign up).
Improve your brand awareness and brand value – The best way I think to achieve more sales is to market your business better and there are several ways to do that online;
Better SEO – Search Engine Optimisation helps your online store and products to be found more easily by search engines, who in turn share your site with those who are looking for what you do. If it is done well, then you can really capitalise, because you are targeting exactly the right people to buy your products. If you have an Etsy shop, then you may wish to check out a recent article I wrote to help you build a better SEO strategy.
Better website, or Etsy shop – appearances mean everything, so make sure that your website, or Etsy shop is providing all the conversion elements you need in order to make the sale. If you have an Etsy shop check out my FREE course, ‘Why your Etsy sales SUCK!’
Better social media – Social media is becoming a much more ‘shoppable’ experience, so if you spend time increasing your brand awareness through your social content and peppering in the odd selling content piece, then you are on the road to getting a higher click-through rate to your web store and therefore encouraging more sales.
Getting press – Being featured in printed magazines, or by online industry blogs, or influencers can be a great way to extend your brand’s reach and may encourage more sales.
Finally remember if you can’t find a way to ‘afford’ discounting, then don’t do it! It is perfectly ok not to host sales… it is not and should not feel like an expectation of doing business online.
Offering discount codes can be a great way to entice sales from customers, but when they become a regular part of your sales strategy, they can destroy both your Brand’s perception, positioning and your profitability. My best advice is to use discount codes maybe just once or twice a year … or try one of the alternatives which offer an incentive, but without discounting beyond your means.