Author: Jim Personius, SmallBiz123.com
In tough economic times, small business owners look for new, creative ways to maintain or increase sales. Naturally, their thoughts turn to discounts and incentives.
Unless you are a discounter, try to avoid abnormal discounting. Discounting can lead to permanent erosion of your pricing power by training customers to expect discounts. This can lead customers to conclude that:
1 – you were ripping them off before at higher price points and/or
2 – you are ripping them off when the discounts are gone.
Try to avoid undermining your value proposition. Discounting places greater emphasis on price at the expense of other benefits, features, services, and value that you provide.
We recommend “act now” incentives to encourage buying decisions. For instance, buy now and throw in some free extra service (be sure to assign full value to it). For example, buy a piano now and get ten free lessons free, a $500 value. Make the offer expire soon (this weekend only). In this case, your piano price is not discounted, but the customer gets extra/higher perceived value for the price.
Next, try to get customers to buy more now than they would otherwise have bought. For example, if your typical sale is $5000, then offer some incentive for customers to commit to a $10,000 purchase. That can be a special price incentive, extra service, or additional product that is not available at the standard $5000 sale. People understand that they should get more now when they spend more now.
Premiums also work very well, as anyone who ever walked through the cosmetic section of a department store knows. They are famous for giving away a $3 bag (with a perceived value of $25) with a $50 purchase. Effective premium programs can be structured for just about any industry and price point. The formula is simple. Set a minimum purchase price just a bit higher than the average sale and offer a free bonus with a high-perceived value. And, set another minimum purchase price at the upper range of typical sales with an even better free bonus. Many customers will increase their purchases 10-30% to gain the free bonus item.
We do not recommend this if cash flow is an issue for your business, but a very effective incentive is to offer improved payment terms. For example, you can offer 90-day terms instead of 30 or 30 days instead of COD. Do not allow yourself to get extended into a risky spot. Factoring or finance companies can help you with this if it becomes something you want to consider.
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