Discounts seem like a good business strategy, right? Well, it depends on how often you run discounts. Ever since Google first started tracking search results in 2004, the number of searches made for terms like “discount code,” “coupon,” and “online sale” have been steadily increasing, showing that from the time people started shopping online customers have been trying to get the most out of every dollar they spend. In fact, 70% of people have reported opening brand emails purely looking for coupons!
This behavior has led merchants into a discounting frenzy to attract sales, but at what cost? At a glance, this might not seem like such a bad idea. Unfortunately, the reality of discounting can be far more sinister, as the perpetual race to the bottom has proven to be an absolutely disastrous long-term business model.
Discounting 101: the death spiral
To understand the dangers of the discounting vortex, let’s look at each part of the cycle to uncover the consequences of always giving out discounts.
Stage 1: the initial sale
The first stage of the discounting spiral is the first discount sale you run. This can be good for your store because it attracts new customers who might not have had any reason to try your products in the past. More people visiting your store means more opportunities for conversion and a greater chance to have more customers join your brand community.
Of course, your customers also benefit. Whether they’re new or returning, this sale lets shoppers purchase your products at a discounted rate, and they are left with an exceptional customer experience that colors your brand in a positive light.
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This is where you have to pay attention to what kind of discount sale you are offering. Is it for first-time customers? For repeat customers? A generic discount sale that you plan to run…
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