In seasons like these, it’s very common to see retailers having discounts and holiday sales. In fact, many buyers look forward to discounts by creating budgets and setting money aside. While the buyers clearly enjoy these price cuts, they mean a different thing for the retailers. As a retailer, discount sales could mean more sales, but they almost always come with a few disadvantages as well. Here are some of the pitfalls you should look out for when having discount sales.
It lowers the perceived value that your items offer.
There are so many reasons why people buy things. As odd as it may seem, value is much more important than price to many shoppers. People will pay top dollar for an item they believe is worth it, even if it comes at a steep price. If the item is considerably cheaper than expected, it may put them off, instead of motivating them to buy.
Imagine you’d normally get a pair of boots for $200. Finding the same pair for $50 on sale could make you leap at the opportunity. Or, it could make you question the shoes’ quality. Sometimes, it comes down to the audience you’re selling to and the reputation of your store.
It could cost you more in operating costs.
If your profit margin gets low enough during your sales, you could actually start to lose money. This is especially true if you consider the operating costs that each sale incurs. You’d have to process and ship items to their owners, funding every step of the supply chain.
Not to mention, you may have to pay more in processing fees with your payment merchant. With merchants like powercash21, the fees are more lenient. With others, they may make the discounts more trouble than they are worth.
You may risk attracting the wrong crowd.
One of the biggest disadvantages of having a Christmas or seasonal sale is that you’ll risk drawing the wrong crowd to your store. Every business that will thrive must have a target market – demography of people you’re looking to serve. However, having a discount may alienate those people and draw some other kinds of people.
For example, if you sell high-end items to upper-class individuals, discounting will send the signal that your items aren’t so high-end after all. Not to mention, your discounts will attract people in an income category lower than your target audience. Once the sales are over, you may lose both your normal customers and the bargain hunters.
Discount sales undercut your profits.
Many retailers have learned to live with this con. Having sales has the potential to trim down your profits, giving you a fraction of what you’d typically make off the sales. Selling more volume may help regain the lost profits, but you’d have to sell a lot of units to make the same profits you’d normally make.
The situation is even escalated if your competitors hold similar sales. It may force you to drive your prices lower and lower until all your profits are wiped out. The competition puts you in a delicate spot because refusing to discount may mean that you get fewer customers.