With the holiday shopping season upon us and innumerable discounts being offered on goods, it is an appropriate time to point out some pitfalls to cutting prices on products learned from a number of years of selling goods online. Three pitfalls to beware are:
1) Forfeiting profit without increased volume
Discounting products or orders should trade profit for increased volume in the form of larger, more frequent, or new purchases. Unfortunately when offered to customers who already had purchase plans, discounts can simply decrease your profits without any upside. To minimize this from occurring it is a good idea to offer discounts for purchases above a certain amount, purchases made within a short time frame, or purchases from individuals who are not already buying from you.
2) Trading tomorrow's sales for today
Increasing purchase frequency is a good outcome, simply shortening the time before someone makes their next planned purchase may do nothing more than decrease your profit and disrupt your cash flows. Consistently running promotions on the same day of the week or month can cause customers to simply delay their purchases until a scheduled promotion. If you experience a significant lull in sales following a promotion this is a pretty good indication that you traded tomorrow's sales for today rather than generating new business or greater volume. Try changing up your promotion schedule, and more importantly, check to be sure that the people using your promotions are actually increasing their purchase volume as described earlier.
3) Devaluing products
By offering promotions too frequently or too long you can inadvertently decrease the perceived value of your products, making them unsellable at their original price. Cutting too deeply into the price of a product can have a similar effect. When a product is particularly unique and without a lot of competition, customers will associate value to the price. Be careful about the message you are communicating with your promotions. Sometimes discounts on shipping or accessories can stimulate sales as effectively without destroying a product's perceived value.
In a lot of instances discounting goods is a necessity of doing business in a competitive market, however it should always be done with care and these three pitfalls in mind. Monitoring you customers' behavior during and after a sales promotion can speak volumes about how to more effectively generate profit in the future.