Does discounting help your bottom line?

I went to Sydney for a travel conference in March - cheapest trip for a long time. Air fares were less than $100 each way. And the hotel (5 star studio apartment) was on special for less than $100 per night too. The thing is, I would have used that airline and stayed in that hotel even if they were the normal price. The discounts were all very well but they didn’t get achieve anything other than saving me some money and reducing the profit of both businesses.

Discounting was a hot topic at the conference, and in almost every discussion I’ve had with business owners since. And today a girl walked into our office giving away discount vouchers for my usual hairdresser. With the current economic conditions, discounts seem to be the first method marketers think of to increase sales or marketshare. But, is it always a clever thing to do?

Here are some questions to ask first…

1. Does it bring in extra sales or push your customer’s decision forward?
2. What effect does it have on your bottom line? Are you still making enough margin to be profitable?
3. What effect does it have on your image?
4. Are you just training your customers to wait until the things they want are on special?

But wait you say, all my competitors are discounting and I have to compete with them. Sorry, but that’s a race to the bottom.

Perhaps a better alternative is to value-add. Why?

1. Because it can achieve the same answers to Q1.
2. Because it costs you less to give your customers something worth $10 retail than it costs to give them $10 discount.
3. Because a gift is remembered more positively than a discount.
4. Think about how you see the shops that have frequent discounting, other than having an end of line/clearance section. Is that they way you want your customers to see you? (It might be if you are a discount store.)

So get creative. A bottle of wine, breakfast voucher or free wifi would have been a good value-add for the hotel.

For retailers, look at small items, accessories or end-of-lines that you can include as free gifts.

As for the hairdresser….