Follow Adam Linkedin Twitter Facebook
Email Adam Email
Financial
Aug 15, 2015

Why Discounts Can Destroy Your Business

Sponsored Content provided by Adam Shay - Managing Partner, Adam Shay CPA, PLLC

Some businesses try to make a go of it by living (and often dying) through discounting. It can be a way to build up a quick initial customer base. Unfortunately, businesses will often attract the most price-sensitive customers with this approach. Unless your name is Walmart (and a few others), price-sensitive and bargain-shopping customers are not typically the base on which you want to build a long- lasting and successful business. There are three main downsides to the discounters approach.

Perpetual Cycle

When a business trains customers to look for discounts and bargain sales it can often disrupt the normal business cycles. If customers know that discounts are coming, they will often not buy a product in the interim. The business is then either forced to deal with severely uneven cash flow or to accelerate the perpetual cycle of discounting. Walmart has the volume to support perpetual discounting. Most other businesses do not.

Emphasize Price Competition

With an emphasis on discounting, a business reduces its competitive advantage to price competition. That's not a place that I want my business to be. Competing on price is usually won by the largest volume seller. The volume sellers can use their volume to leverage lower prices from suppliers. Most small to medium-sized business do not have the power to do so.

Make Customers Mad

I recently had an experience with Hobie polarized sunglasses that I want so share as an example. I bought sunglasses from the company directly several years ago using a 50 percent online discount. My glasses are great glasses but were getting older, and I needed a backup pair. Due to my previous purchase, Hobie mailed a Father's Day special of 25 percent off that I shared with my wife. She purchased a pair for me and I was happy until a week later. At that time, Hobie emailed me a 50 percent off discount code which made me mad that we had missed the additional 25 percent off. I went from a happy customer to a not-so-happy customer because of the timing of Hobie’s various discounts.

Alternative Approaches

While some companies operate in the discounting and special-event sales world, it's a dangerous place to be. If your business is doing so, take a closer look to see if that is the best approach for the long-term and customer loyalty. Some alternatives to price competition are offering superior products or services, product innovation, and company culture. I firmly believe that product innovation is the best space in which to operate and differentiate a business. How can you make your product or business different?

My goal today was to cover the dangers of relying on discounting and price competition and to encourage businesses to look elsewhere for competitive advantages.
 
Adam Shay, CPA (NC License Number 35961), MBA, is managing partner of Adam Shay CPA, PLLC. He focuses on minimizing taxes and improving the financial results of entrepreneurs, and is actively involved in supporting the Wilmington entrepreneurial and startup community. For more information, visit http://www.wilmingtontaxesandaccounting.com/ or email him at [email protected]. He can also be reached by phone at 910-256-3456.

Other Posts from Adam Shay

Adam shay blk 52015121549
Ico insights

INSIGHTS

SPONSORS' CONTENT
Hewet60

Leaders are Always Learning!

Ron Hewett - Academy Leadership
Lgoriginalheadshot 311794626

Summer is the New Holidaze

Laura Bransfield - Summerfield Custom Wellness
Geofflosee300x300 10221511305

Got Flood Insurance? Get That Proof of Loss Form in Quickly!

Geoffrey Losee - Rountree Losee LLP

Trending News

Two Wilmington Businesses Win NC TECH Awards

Johanna Cano - Nov 16, 2018

A Rising Interest In Rising Rates

Cece Nunn - Nov 16, 2018

Tides Changing For Hampstead Boatbuilder

Christina Haley O'Neal - Nov 16, 2018

N.C. Ports Plans Another Turning Basin Expansion In 2019

Christina Haley O'Neal - Nov 16, 2018

Second TEDxAirlie Event Planned By Local Organizers

Johanna Cano - Nov 16, 2018

In The Current Issue

Airlie At Wrightsville Sound Plans Progress

The sale of home sites in a new luxury neighborhood in Wilmington near Wrightsville Beach could be launched as early as the spring of next y...


Tourism Officials Work To Bring Visitors Back

As the region continues to recover from Hurricane Florence, the Wilmington and Beaches CVB recently announced a plan to get the industry bac...


A Rising Interest In Rising Rates

Local and national real estate observers weigh in on what interest rate hikes might do on home buying activity....

Book On Business

The 2018 WilmingtonBiz: Book on Business is an annual publication showcasing the Wilmington region as a center of business.

Order Your Copy Today!


Galleries

Videos

2018 Power Breakfast - Dishing on the Restaurant Biz
2018 WilmingtonBiz Expo - Keynote Lunch with Eric Dinenberg, Rouse Properties
2017 Health Care Heroes