Times are tough in Zimbabwe. In fact, times have been tough for a long time especially for new and smaller businesses. Resorting to offering a discounted service has been the answer for many as the market will happily take up a value discount. While discounts make sense when they bring business, in given the market conditions there is a case to be made for discounts also being harmful to your small business. This is not meant to discourage the discounting of products but rather to make you fully aware of some of the issues they present and the effects they can have on your business and its ability to deliver.
May affect motivation
Let’s think about this from a motivation perspective for a bit. You decide to go into business to provide a product to customers in exchange for monetary value. Whatever the initial thinking you have an assigned value to products. The difference between the cost and this value is your motivation. So it follows that when this difference is reduced it will also have a reducing effect on your motivation. This reduction in motivation shows up in your work whether it how you treat customers or the quality of the product itself. Of course, we have to do what we have to do but discounting prices should never come at the cost of your motivation.
Opportunity cost of time and effort
Continuing with our previous train of thought on the value you place on your products and the reward you receive for them we must also consider the opportunity cost. Say for example you have limited capacity and you cannot take a full-price paying customer because you are fully booked with discounted customers. This reflects negatively on the rate of return you are earning for your time and effort.
Discounting trap
Perhaps the biggest problem with discounting products to get business is the effect this has on prospective clients. We’ve all had some sort of experience with this from at least one side of business and customer relationship. Customers introduced to your products at a discounted price tend to assign this as the permanent value of your product. So when you try to convert them to full-price paying customers you are met with resistance. It creates an undesirable situation where you are stuck with customers who only appreciate your products at a discounted price. One solution is to let customers know, including on the invoice that they are receiving a discount and making sure they know the full price.
Reduces profitability
The other problem that discounting presents is that it eats into your profit. We’ve already spoken about what this does to your motivation but lets also take some time to look at its effect on the profitability of the business. This could be a very long discussion so let’s simplify things by saying that the more profitable a business is the better equipped it is to do business in the future. The projections and forecasts in your business plan are based on a certain level of profitability and if that is diminished your plans and projections start to look more like fantasies. To manage this running a cost-benefit analysis before taking on a discounted customer is useful.
May affect how the market sees your business
Finally, it may also lower market confidence in your business. Customers are not always privy to the background workings of a business, none the less human minds are constantly in a state of comparing. Therefore when prospects see a discounted price on a product, “what’s wrong with it” is a common question. They will not always ask you and this makes it harder to deal with. Customers may shy away from your offering simply based on the price being too low. Your product may provide just as much value as other competing products but the customer will only know this when they have tried the product. You may be able to win some over by explaining just how it is you can provide the product at a lower price but as I mentioned before customers do not always ask you directly. When they do shy away because of a low price they are unlikely to tell you.
Far be it from me to discourage anyone from discounting their products. These are however paramount issues that we should consider when offering discounted products.
