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
Headshot2 3182020512

Things To Know Before Installing A HEPA Filter

Chris Jones - Green Dot Heating & Air
Dave sweyer 300 x 300

Receive A Permanent Change Of Station? 5 Reasons Members Of The Military Should Consider Becoming Landlords

Dave Sweyer - Sweyer Property Management
Drewsmith copiersplus headshot

How Accessories Can Step Up Your Copier Game

Drew Smith - Copiers Plus

Trending News

South College Road Property For Sale After Honda Dealership's Move

Cece Nunn - Sep 24, 2020

Judge Weighs Temporary Delay Request On NHRMC Vote

Vicky Janowski - Sep 23, 2020

NHC Commissioners Look To Vote Oct. 5 On Hospital Sale

Vicky Janowski - Sep 25, 2020

Cape Fear Sports Medicine Joining EmergeOrtho

Staff Reports - Sep 25, 2020

Third ReStore In New Hanover County Helps Expand Habitat Capabilities

Jenny Callison - Sep 24, 2020

In The Current Issue

Take A Walk To Local Movie Sites In Town Of Burgaw

The town of Burgaw might seem a long way from California’s Tinseltown, but it has been a star in its own right as the backdrop to many Holly...


Info Junkie: Michealle Gady

Michealle Gady, founder, president and CEO of Atrómitos, an SBA-certified woman-owned management consulting business, shares her tech and in...


Lumber Prices Through The Roof

The prices of lumber have increased exponentially over the past several months....

Book On Business

The 2020 WilmingtonBiz: Book on Business is an annual publication showcasing the Wilmington region as a center of business.

Order Your Copy Today!


Galleries

Videos

2020 Leadership Accelerator: Virtual Workshops for Real Leaders
2019 Health Care Heroes
August 26, 2019 Power Breakfast: A Healthy Sale?
2019 WilmingtonBiz Expo Keynote Lunch - CEO, nCino, Pierre Naude`