During challenging economic periods, it’s not unusual for businesses to observe slowing sales and immediately think a sale or discount will provide a temporary solution. However, this can often be a knee-jerk reaction, which may lead to long-term issues for the brand and its financial health.
If you think ‘going on sale’ is the answer to your financial issues, then read on.
Eroding Perceived Value
Perceived value is the worth a customer places on a product or service, often based on how they perceive its benefits in comparison to its cost. Going on sale too frequently or for extended periods can compromise this value.
Simon Beard from Culture Kings, known for its exclusive streetwear and high customer engagement, once remarked, “Discounting breaks down the perceived value. Once you’ve offered something for less, it’s hard to convince someone it’s worth more later on.”
When you discount your products, you’re essentially telling your customers that they may have overpaid in the past, and they might hesitate to buy in the future at the regular price.
Going on sale all the time might even encourage prospective customers who are not hot to buy right now, prepared to wait until the next sale.
Cash Flow Implications
While a sale might bring in a short burst of cash, it’s not always enough to cover costs, especially if your margins are slim. Sacrificing profit for volume can endanger the long-term sustainability of the business. Without adequate cash flow, businesses might struggle to cover operating expenses, reinvest in the business, or handle unexpected costs.
The Dangers of Short-Term Thinking
By focusing on quick sales through discounts, a business might neglect the importance of building a brand, fostering customer loyalty, and differentiating themselves in the market. This short-term approach can hurt in the long run, as it can be harder to rebound to standard prices or introduce new, higher-priced products.
Constant Discounting, A Case Scenario: J.C. Penney
A real-life example of the pitfalls of constant discounting is the case of J.C. Penney. In 2011, the company tried to shift away from its traditional high-low pricing model (regular pricing interspersed with frequent sales) to an “everyday low prices” strategy. This dramatic change confused and alienated many of its long-time customers who were accustomed to sales. After seeing a sharp drop in sales, J.C. Penney had to revert to its previous model, but the damage was done, and the brand lost a significant portion of its customer base and market value.
The Role of Business Funding and Cash Reserves
In slow times, having adequate funding or cash reserves can be a lifeline. Instead of resorting to slashing prices, businesses with strong financial backing can invest in strategic marketing, Research and Development, and other initiatives that can drive growth. They can weather the storm without compromising their brand’s value.
The Imperative of Long-Term Advertising Campaigns
An effective, consistent advertising campaign can fortify a brand’s position in the market, even during economic downturns. It reminds consumers of the brand’s value proposition and its differentiators. By maintaining an advertising presence, brands can ensure they’re top-of-mind when consumers are ready to make a purchase, regardless of economic conditions.
Economic downturns are challenging for any business. However, resorting to frequent or deep discounts can have long-term consequences that might be hard to recover from.
It’s crucial for businesses to think strategically, safeguard their brand’s perceived value, and invest in long-term growth initiatives. As the old saying goes, “It’s not about weathering the storm, but learning how to dance in the rain.”
Cheryl Jowitt is co-founder of Rebel Connect PL, a family owned and operated Australian business that provides total marketing solutions. Rebel Connect clients have access to advertising across the company’s radio networks, Rebel FM & the Breeze and Rebel Agency, a digital marketing solutions company providing website development, SEM and social media marketing strategies.