Being seen as a discount-business is a big no-no for many business owners as it can be a public sign that the business needs to attract new customers, or might be struggling to move stock. Not all businesses share this view, however, and there are some businesses that have built their entire strategy around discounts and promotions. An obvious example that springs to mind is arts and craft store Michaels – have you ever been there without using a 40% off coupon? Google AdWords shows the average monthly search volume for “michaels coupons” is 1,830,000! Online small business marketing materials provider, Vistaprint is another example – there’s always a discount code floating around on the internet somewhere!
The businesses that are reluctant to get into the discounting game have good reason for being cautious. Sure, discounts can cause a big short-term spike in sales and revenue for the duration of the discount or sale, but if not implemented properly can result in brand dilution, cost-cutting, poor products or service, and ultimately, losing more customers than gaining.
How Can Discounting Dilute My Brand Image?
When it comes to discounting, whether or not it will negatively impact your brand image will depend on two things:
1) Your brand positioning
2) Strategic implementation of a discount strategy
Your Brand Positioning
High end, luxury brands have to be very careful with any kind of discounting. Their target market is not concerned with cost. New business will come from positioning the business as exclusive, unique, luxurious etc. Customers like knowing that no one else (or very few people) will have that item. Owning it portrays a certain air of wealth. Think about luxury sports-cars – when you see one driving down the street and you know it’s worth upwards of $100K it creates envy amongst bystanders, and a sense of pride for the owner. As soon as those items become available to less-affluent customers, the brand is diluted and the value to existing customers is lost.
Michaels, mentioned earlier, is on the pricier end with its arts and craft products – you can get many of the same items cheaper at Walmart. However, despite a permanent coupon strategy, the brand has retained its image as being a retailer of quality products. They have not fallen to being perceived as a discount store, even though you can get almost any product in-store at 40% off with a coupon.
Walmart, on the other hand, built on the foundation of providing everyday items at low prices to everyone rarely promotes large “% off” discounts or coupon codes as part of their marketing strategy outside of the store. Walmart is already positioned as a being low cost, they do not need to provide discount codes and coupons to take their prices even lower, and risk becoming compared to lower-quality, dollar-type stores. Providing “value” is one thing, being “cheap” is another positioning entirely that Walmart wouldn’t want to traverse the slippery slope down to.
Think very carefully before introducing any sort of discounting to your products. What do you want the brand to represent, and will discounts ruin this perception?
Strategic Implementation of a Discount Strategy
We aren’t’ suggesting that businesses should not employ discounting as part of their marketing strategy, far from it! It does however, have to be approached intelligently, with only peripheral products discounted so as not to dilute the core brand. A specialized burger bar might only ever discount its wings on certain nights of the week, but doing so will draw new customers in who will no doubt eventually try the burgers.
Intelligent discounting can be used to bring in new customers at particularly quiet times of the day. This usually requires targeting a different customer demographic to your core crowd. For example, Escape Rooms have become increasingly popular in recent years and are often open late into the night. By discounting rates from 10pm-midnight, you’re not targeting your core audience of daytime visitors which would include families and younger visitors, but instead you’re just targeting the older crowd or teenagers, and as such, keeping the venue busy at all hours. It’s for a similar reason that pubs and restaurants have happy hours in the middle of the afternoon – that’s when it’s quiet and seats need filling – targeting people who are available to visit in the middle of the day, not the average working person.
Loyalty programs are a form of targeted discounting, only to loyal customers, and usually involve something received after a certain number of visits. Buy 9, get your 10th coffee free is an example. It is a form of discounting, but only to a target group, and it’s rewarding loyalty rather than driving new customers for one-off visits that may never return.
Jewelry store Pandora very rarely has straight-up discounts (except after Christmas when certain products can be up to 40% off, and it’s like a zoo in the store!). However, it’s very common for them to have regular value-add promotions, such as spend over $150 and get a free bracelet, or buy two charms and your third one is free. Even these promotions are still a form of discounts, however they are dependent on a certain level of spend to obtain the discount – a win:win for both shopper and seller, ensuring profit margins are maintained, but it’s not something that every customer can afford.
Remember, discounting doesn’t have to be for all customers. It’s your business, you can decide who the discount applies to, what to discount, and where and when the discounts are promoted. Test various sales channels for the discounted items and selectively use marketing and advertising tactics to see what works best and has the desired effect. Keeping the emphasis on the brand and product value.
How to Attract New Customers Without Discounting
One word. Value.
For promotions to be successful at drumming up new business, there must be a perception of value from the customer.
Exclusivity works well as a tactic for driving new customers. People like to feel as if they are in a “secret-club” of special members. Think about Starbucks’ secret menu drinks – while quite well-known now, there was a time that only those in-the-know could order these drinks, giving them a sense of exclusivity.
Providing something your competitors don’t will give customers value. Delivery charges are loathed by almost all shoppers, even though it’s a legitimate fee to charge – after all, the business has to bear the expense if you don’t. Offering free delivery can set you apart from your competitors. It isn’t a discount if it’s a permanent value-add provided to all your customers. It’s essentially the business’ Unique Selling Proposition.
Think Long-Term Loyalty, Not Short Term Gains
While discounting can be a way of getting people through the door, if not implemented strategically it will do nothing to foster loyalty and long-term customer value. True, there will always be some customers that only come in for the amazing deals and never return, but the purpose is to get people into the business and then provide an out-of-this world customer experience to keep them coming back.
If implemented properly, a strategic coupon or discount strategy can be used to draw more long-term customers into your business without damaging your reputation or changing your perceived brand image. However, it isn’t a strategy that will apply to all businesses, especially those who do not want to be perceived as a discount business. In these cases, providing an exceptional experience and creating a sense of exclusivity or value will have a greater business benefit in the long-term without diluting your brand positioning.