Focus on Value over Discounts this Holiday Season
Between Halloween, Thanksgiving, Black Friday, Cyber Monday, Christmas, and the New Year, there are six major holidays in rapid succession that generate 30% of retailers' business in the last two months of the year.
To beat the competition and join in the seasonal offers, many retailers will discount their products significantly in order to get that short-term boost in sales. Not only does this work to boost sales, but it can have several other benefits for their business as well. Typically, these discounts will do a number of different things. Let’s look at the positives first. Discounts will…
drive sales. One of the most obvious benefits is that you can quickly increase your total sales which is why people use them. Sales are powerful. Not only is it good for hitting your sales goals, but customers also love finding ways to get a deal so it can benefit everyone
move excess inventory. Once you reach the end of any holiday season, sales of those seasonal products start to really slow down. Discounting these products can be an effective way to quickly clear out old stock.
generate demand for new products. On the flip side of rotating inventory, you can launch your product at a discount to lower the activation energy required to get a customer to buy your product.
attract new customers at a higher lifetime value. For subscription-based products, offering a steep discount at the beginning can be a great way to start a long-term relationship with your clients that will have a high lifetime value.
boost your reputation with your target demographic. Depending on your audience, providing discounts could be very on-brand with your company and be consistent with how you typically interact with your customers.
build relationships with loyal customers. When you have loyal customers consistently returning to your business, giving them the gift of a discount on a product can do wonders for your brand reputation and relationship with your customers.
Looking at this list alone, the arguments for using discounts are compelling. However, discounts aren’t simply scratching out the old price and writing a new one. Doing that without careful thought can be extremely detrimental to your business. If you aren’t careful, using discounts could…
project a lack of confidence. Some customers will see discounting your price as you not believing in your product simply because you don’t sell it at full price. Why? It signals a lack of quality and because of this, they will choose to go to other companies that appear confident in their products.
set a bad precedent by training your customers to wait for the sale. If you do a sale every year, your customers will come to recognize a pattern and just wait for the sale instead of buying the product when they see it. Doing this can quickly lower your margins.
establish lower perceived value. Discounting the price of your product makes it look cheap. When people see cheap they often associate it with low-quality and bad experiences that could affect your sales, having the opposite of the intended effect.
you come off as untrustworthy. Untrustworthy, you ask? I wondered the same thing when heard this for the first time. Here’s how this works, you have a customer come in one day asking if you can price match or if you have a discount for them. You (or your sales staff) say no, and they end up buying the product at full price. A few days later, when you decide you want to hit sales targets and offer a discount on that product when that same customer comes in and asks why they didn’t get that deal, it makes your company look untrustworthy.
cut into profits and exhaust your team on the sales floor. Look to Black Friday as the ultimate example of this. Customers know there will be huge discounts on products so they wait to buy and increase demand on your sales staff Pushing them through the holidays and with the rush of customers can exhaust your team.
attract the wrong customers. Knowing your audience and pricing your items accordingly is important. Discounting products can signal to the wrong audience that you are for them.
lead to the infamous race to the bottom. Discounting your products to compete with other local businesses is typically not a good idea because their response could be to offer a better deal and then you end up in a race to the bottom.
Now listing all of these negative results of discounting your products is not to convince you that you shouldn’t use discounts as a tool in your business at all. On the contrary, you should use discounts when they are appropriate.
So if you want to use discounting as a tool, when are the appropriate times to use it? Generally, they should be infrequent, exclusive, and time-bound. Here are a few examples:
An exclusive offer to loyal customers. Think of it like a gift to customers that have been with you through thick and thin. This can be as simple as a link-based discount in an email to customers in your loyalty program with a simple thank you graphic.
A week-long post-holiday sale for overstock items. A popular choice is, rather than holding onto products and having a giant pile of dead stock sitting in your storage warehouse at the end of the holidays, giving customers the opportunity to purchase those products at a lower price to clear space for inventory with a higher margin.
An incentive for customers to generate referrals. To grow your customer base, consider giving your current customers the opportunity to earn a discount code for referring a friend. When they refer someone to your business, put an expiration date
Keep in mind that if the discount that you want to apply does not fit within the bounds of being infrequent, exclusive, and time-bound, then the discount will be less effective. What if you want to remove one of these limitations? What could you do instead? Try value-added offers. Take a look at these examples:
Implement buy-one-get-one offers. Picking items that are consumable, complementary, usable in pairs, or have at least a 50% margin will allow you to at minimum break even or, in some cases have a higher margin to come out ahead. You can even offer free samples to go along with it!
Offer customers free shipping. While simple, you can be creative in the implementation. Instead of free shipping on all products, choose a select few to boost sales on those specific products. Or limit the location, timeline, or even set free shipping for a specific item or dollar amount.
Release an annual holiday gift guide. This is a great way to inform your customers about new products during the holiday seasons and can easily be digitized to be added to an email, your website, or even printed to be distributed to in-store customers.
Start a customer loyalty program. Whether it is a point-based, tiered, subscription, or value-based model (Check out Sephora’s loyalty program that allows you to donate rewards points to the National Black Justice Coalition), you can incentivize your customers to keep returning for the benefit of early access, exclusive discounts, and other valuable benefits.
Whether you decide to implement a discount on your product or utilize another value-based offer this holiday season, don’t forget to keep an eye on your margins. And if you need help coming up with other creative ways to market your business this holiday season, give us a call. We can implement any of these ideas and more!
