The pricing decision is an important element of the marketing mix for every product and service. It not only determines the profit margin of the particular product. More importantly, it positions the product in the mind of the customer:
- In relation to competitive products and services
- In relation to other offerings of the vendor
- In relation to the customers mental scale of value for money (cheap article, mid-segment, luxory, status-enhancing …)
These days, the competitive landscape as well as customers’ expectations and perceptions change faster than ever before. Accordingly, price levels need more flexibility too. Discounts are an established way to adjust prices with high flexibility. Done right, the do not change the price level permanently, but support various campaigns. Discounts can be offered for a given time period, for particular products, customer groups or market segments or as a reward / incentive for a desired customer behavior. Thus, they can support a large variety of overall business targets, ranging from higher inventory turnover to high public attention.
Discounts – Powerful but not without risks
Before we discuss the advantages of discounts in the marketing mix, a word of warning is necessary:
Discounts can do much harm to your business too. They should be used with great care. If you use discounts too heavily, you would only teach your customers that your overall price level is far too high. They might even perceive your regular pricing policy as unethical and profit driven. Another risk is that you train your customers to postpone their purchases until your next discount campaign starts.
In order to avoid these downsides, it is recommended to use discounts as one element of your pricing strategy, not as the only element. Offer discounts with some scarcity. Thus, they will even get more attention than repeated and expected campaigns.
Discount campaigns also need a supporting communication strategy. For instance, when discounts are used to enhance or reward the loyalty of particular customers, they need to clearly understand why they are offered this special price.
Used wisely, discounts provide a set of advantages to businesses
Shoppers love to browse, whether they’re on the high street or online. However, looking and buying are two very different things. Offering attractive discounts encourages people to take that final step. Additionally, customers are drawn towards sale items and someone searching for a special piece of high priced goods is more likely to buy when a discount code significantly lowers the price.
Covert older inventory into cash
Discounting is an excellent short-term sales strategy that can have long-lasting advantages. Known as “monetised inventory discounting”, the practice of selling older stock at lower prices can be highly profitable. Slow moving stocks tie up valuable capital that could otherwise be used for new business opportunities. Moreover, they tie up warehousing space and thus increase storage costs. Discounts can help to convert these unproductive inventory items into cash.
Differentiate prices by customer segment without reducing the overall price level
Discount codes can be issued to particular customers and customer groups without much public notice. Whereas an overall discount for the general public is widely notices, marketing strategies often call for more differentiated campaigns. Discounts enable vendors to support their market segmentation strategies with matching prices. Businesses may offer different levels of discounts to customer groups such as
- Repeat customers as a reward for their loyalty
- Customers who have migrated to competitors as an incentive to come back
- Irregular customers as an incentive to return more often
The general price level for the majority of customers is not affected this way.
It’s a cost-effective form of advertising
Good deals tempt people to buy and they’re likely to share their good fortune with their friends and family. Cut the price of last season’s stock or offer a range of generous discount codes and word will spread. It’s a profitable move for both the retailer and the customer. Stores sell more and shoppers will tell others about the bargains they’ve found. This word-of-mouth-advertising is a beneficial side effect that adds up on the other advantages of a discount strategy. It allows vendors to reach new customers without any additional advertising costs.
Discounts allow you to highlight certain products
If you’re a specialised retailer, showcasing your product is essential. For example, leading jewellery brand Gemporia is known for their gold, silver, diamond and gemstone jewellery. The brand regularly features its best products on television and online campaigns. A Gemporia discount code offers the best possible prices on particular pieces that have appeared on its television sales channel or online store.
Thus, discount codes for particular items enable vendors to directly direct customers’ attention to these items. Based on their overall marketing strategy, they may feature for instance
- entry level-products and thus encourage customers to try out their offerings
- novelties to attract early-mover-type customers
- products that are exemplary for particular product features the vendor wishes to highlight
Discounts are an important element of marketing mix and pricing strategy of any business. They allow vendors to adjust their prices in a flexible and non-permanent way. Used with care, there won’t be any negative side effects on the businesses general price level and its reputation. Therefore, they should be carefully integrated into the overall marketing strategy.
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