The pitfalls of massive discount promotions

ILLUSTRATION BY RUTH MACAPAGAL

Companies often think that offering massive discounts, like 50 percent off or more, is a smart way to attract customers. It might bring in a lot of sales initially, but let’s take a closer look.

Most of the people it draws in are bargain hunters—those who love a good deal but might not stick around to buy at regular prices. This might sound acceptable at first, but it can lead to trouble later. We’ve seen companies face problems in the past because they relied too much on these big discounts. This isn’t just history; it’s a lesson on how businesses need to focus on giving value through good products, innovation and fair prices.

Interestingly, many customers lured in by these deals aren’t new category buyers but rather, brand switchers from another brand, store or platform, resulting in no incremental sales for the category.

The bargain hunter effect: A one-time thing

When companies give out huge discounts, they often attract a specific type of shopper—the bargain hunter. These shoppers are excited by the idea of a big discount, but they might not become regular customers. Their decision to buy is more about getting a great deal than really liking the product or the brand. This creates an unstable foundation for businesses because the significant surge in sales during discounts typically doesn’t translate to repeat purchases at regular prices. Moreover, consumers might question why they should pay full prices when they’ve been conditioned by retailers, online platforms and brands to anticipate the next sale.

Different shoppers, different needs

Imagine if one size of clothing had to fit everyone—it wouldn’t work well! Just like that, using the same strategy for all customers doesn’t work in the real world of shopping. This is where market segmentation comes in. While massive discounts can bring in a lot of shoppers at first, they often don’t make those shoppers stick around.

Understanding what different groups of shoppers like and want is essential for a business to succeed in the long run.

Learning from the past: Where did they go?

Looking back at companies that heavily used massive discounts shows a pattern; some of them are not around anymore. The big boost in sales during the discounts didn’t lead to continued success. This teaches us the importance of building a group of customers who appreciate the product even without discounts.

Regularly offered discounts may lose their appeal over time, transitioning from a motivator to a mere satisfier. When these offers are removed or discontinued, they become dissatisfiers. The ever-increasing parade of various discount types exemplifies this phenomenon.

Give value, not just deals

For a business to thrive, it’s crucial to offer customers more than just discounts. A good product, innovation and fair pricing make a stronger bond with customers. While it’s good to give a small discount when introducing a new product, a big 50-percent discount might not attract the segment of customers who will stick around for the long haul. An introductory discount in the range of 10 to 20 percent could be more effective strategically.

Additionally, consider personalized offers based on customer behaviors, establishing loyalty programs, forming exclusive partnerships and providing extra services like extended warranties, speedy delivery and community engagement. These elements can influence customer decisions and make a platform stand out. And, of course, ensuring a positive shopping experience with user-friendly websites, reliable delivery and excellent customer support is crucial.

Adapting to changes: Today’s fix might be tomorrow’s issue

What works well today might not work as well tomorrow. Relying too much on massive discounts can lead to problems in the future. The smart move is to have a balanced approach, focusing on both attracting new customers and keeping them around with a strong value proposition. Keep in mind that success isn’t solely about making sales; it’s about forging enduring connections with customers that extend beyond the excitement of a sale. Marketers should focus on diligent efforts and strategic thinking rather than boasting about high sales during ongoing promotions. The real gauge of success is found in the incremental user baseline compared with the previous, providing justification for the marketing expense. —CONTRIBUTED

Josiah Go is the chair and chief innovation strategist of Mansmith and Fielders Inc. Check out the seminar and event schedules of Mansmith at www.mansmith.net.