Intuit features Grasshopper - Why Offering Discounts May Be a Major Mistake

Shoppers love a bargain. The likes of Groupon and LivingSocial wouldn’t exist otherwise, and the art of bargain hunting long predates daily-deal sites. Among the key reasons why offering discounts can be such a powerful sales tool: Most people aren’t very good at math.

Consumers’ delight in getting a steal means that sales, coupons, and other forms of discounts can give small businesses a nice cash boost. But discounting comes with considerable risks, too. A Harvard Business School article explains the pricing challenges faced by large department stores like J.C. Penney and Macy’s, for example, where customers have come to expect heavy discounts.

Here are four potential problems to consider before lowering your prices to drive sales:

1. You could devalue your brand. Stephanie Bullis, a marketing manager at the virtual phone company Grasshopper, notes that there’s a fine line between promoting and diluting your brand. “We’ve learned that although offering discounts does make your service more enticing to try out, you’re also at risk for customers not seeing the real value in paying full price if they know they can get a discount,” she says. “We believe in our product, and we believe it’s worth the price our customers pay. Offering it any other way will just cheapen our brand.” As a result, Grasshopper usually only offers discount deals through partners or as part of specific promotions, such as those aimed at prospects in new markets.

2. Discount buyers may never pay full price. One of the biggest problems with offering discounts is that customers may never pay more. Moreover, that new customer you brought in with a sweet deal may not turn into a repeat customer — the best kind of customer for most businesses. A related problem: Discounts work. As a result, small-business owners can become addicted to them and damage their bottom line, notes Rich Austin, who runs a sales and management training firm. “As a business owner, you have to ask yourself, ‘Do I want my clients to buy from me only on price, or would I like to known for something else?’” he says.