Disadvantages Of Discounts
When the business is doing well and traffic is high, you can easily raise the price of items in your store. However, when the business is running slow, how much should you charge the customers? Most business persons are willing to offer even very high discounts such as 15% off $100 or more so as to attract new customers. Customers might come but how will the high discounts affect your business?
When you offer discount for a particular item, it means you have reduced its price. Price reductions lower the value of your brand. When you offer a big discount to it, the brand image is ruined. This will make the customers lack confidence in your offers or simply your business. This can be a major drawback for your business.
Lowering prices is a way of killing your profit margins. For example, if you have 60% gross margin and you reduce your price by a whole 25%, you will have to increase sales by 71% so as to retain your opening profit margin. To find a sales point that will balance a margin that is affected like that is difficult or even impossible. Keep your profit margin by reducing the cost of your goods by reducing expenses. Offering discounts also makes the customers compare prices of different companies or stores. When you offer discounts, you are going to end up competing with bigger companies whose prices are even lower.