This article is only for educational purposes and does not constitute legal or financial advice. Make sure you consult a professional regarding your unique business needs.
Seventy-seven percent of shoppers say that discounts can influence where they shop, according to a study by Forrester Consulting. Two-thirds of shoppers surveyed looked for a discount before even beginning to shop.
Discounting services or products can be tricky, particularly during tumultuous times, so how do you discount just enough that the promotion attracts new customers or increases sales without losing money? Square spoke to a few small business owners who have been exploring discounting through sales, gift cards, and coupons as ways to better manage their cash flow.
Discounting on occasion for greater impact
Jenna Sharma, owner of BlushTan Worcester, says that she doesn’t like discounting too frequently because it trains customers to expect a discount so long as they wait long enough every time. “I feel like that’s Bed Bath and Beyond. I’ll never buy something from them full price because I know tomorrow they’ll email me a coupon. I never want to train my clients in that sense.”
In March of 2020, Sharma made a push for gift cards, offering 20% off when customers purchased gift cards. She found that these kinds of sales were almost better in special circumstances rather than all the time.
“We try to add value to our sales, so buy a tanning mousse, get a free tanning mitt. So, buy a bundle and get a set of nail strips,” says Sharma. “Added value in the sense that if you’re exposing them to a product, especially nail strips, a one-time use situation, hopefully they’ll buy them again once they use what you gave them.”
Choosing not to discount at all
Curriculum USA, a fully functioning barber shop that provides haircuts and a broad range of retail goods, has been investing their time in growing their online marketplace during the pandemic.
The barbershop has seen changing consumer behaviors during the pandemic with a shift to online, but Curriculum USA data scientist Renzo Becerra feels this strategy will be key in building a loyal customer base — not only now, but well after the pandemic.
“In terms of discounting, we’re focusing on acquiring and retaining customers — high-quality customers,” says Becerra. The business has not been running promotions and isn’t planning to.
READ MORE: How to Grow Your Base of Loyal Customers
“I think that varies based on whatever your business is or business model you’re running, right? If you’re a fine-goods and businesses company, you probably don’t want to do much discounting because it does impact your brand to a degree and it does kind of hit on that customer lifetime value,” says Becerra. “If you’re a bakery, that might be an incentive for people to buy more sweets. But in our case we found that people, not really discounting too heavily or creating monetary incentives for new customers, really ultimately increase the lifetime value for our customers as a whole. And that’s kind of how we’re focused on growing at this point in time and building the brand.”
Optimizing discounts for eCommerce
For Wooden Table Baking Co. founder, CEO, and head baker Andrés Ozzuna, discounting before the pandemic brought in customers. The business has a retail and cafe location where they make alfajores, truffles, empanadas, and more, and they also sell wholesale through Whole Foods.
“It used to be that I put out signs like 10% off empanadas on Tuesdays,” says Ozzuna, “now nobody is walking in because everything is pretty much online,” he says, adding that when the business is able to run promotions, packaging materials like tape and boxes are at much higher prices due to increased demand.
“So, it’s a little bit less stable and running deals is a little bit more scary because you don’t know. Nobody is stable like they used to be in my opinion.” Before the pandemic Ozzuna would hold events in the cafe, covering the costs knowing that people would come in and spend. While Tuesdays meant discounts on empanadas, Fridays would see a different promotion entirely.
The cafe has been a longtime dream for Ozzuna who always wanted a place that customers could meet and enjoy a coffee together. He wanted to make sure prices would always be affordable. As a child, he didn’t always have the money for a treat like an alfajor or a truffle. “I try and be affordable, I try and be mindful,” says Ozzuna. “I don’t want people to feel that way even though we live in a different country, a different place and people have more money here than other places. I don’t want to be that way.”
Ultimately, discounts and promotions can help grow your business’s customer base, retain loyal customers, and at times boost sales. But with changing consumer purchasing habits, those sales may take a different form or remain on pause until in-person business can resume at the level it was prior to the COVID-19 pandemic. It’s important to keep an eye on your cash flow, the money coming in and out of your business, as you use strategies like these to grow since they will impact your balance sheet. As sales change, your discounting strategy may have to as well; promotions that were effective pre-pandemic may no longer be as impactful. With COVID-19 vaccines being administered around the world, consumer behavior is set to change once again and with it, options for growing sales.
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