Reasons Why Heavy Discounting Cannot Lead to Sustainable Growth
Due to the trend of rampant discounting, the perceived value of their products plummets
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It would hardly be an exaggeration when we say that we have backtracked our way on the timeline of evolution. Take hunting for example. More than we want to admit to ourselves, we still are hunters, just like our Paleolithic brothers. The only difference lies in the fact that the pilot project of humans was all about hunting food and we, apparently the more evolved ones, continue the hunt for food but in the form of coupons and deals.
We can smell deals from apps away, stealthily switching from one food aggregator app to another. Even from a herd of hundreds, we can spot the juiciest, the meatiest and the choicest deal. Unlike our ancient brothers who used to feel contentment after every successful conquest, nothing seems to satisfy our lust for offers and discounts. 50%, 60%, additional discounts, wallet discounts are all the daily staples of people who are habituated with dining out or ordering in. As customers it’s our right to expect the best value for money and expecting a discount is justified, considering the lack of perceived value of a particular product or service, better offers from other restaurants or deal providers.
The question that needs to be addressed is, are businesses losing the perceived value of their products and offering? A product’s value is worth only as much as someone is willing to pay. So automatically if a business indulges in the trend of rampant discounting, the perceived value of their products plummets. This is just one of the many complications that domino effects its way into putting a business in a bad situation.
It complicates things
Let’s take the example of food and beverage deal apps. As a restaurant you might have your presence on not one but different channels offering different discounts. Your authenticity along with the perceived value of your product goes for a toss when you have different price structures on different mediums. It also dilutes your brand imagery and brand loyalty.
It decentralizes your power
Although there’s no denying that these food aggregator apps open the doors to a larger audience and can be and has proven to be a boon for restaurants, many businesses recently challenged the deep discounting practices by delisting themselves from the online platforms as a part of #logout campaign. They weren’t happy with the fact that they had little or no control over the discounts they offered to their customers. As a restaurant business, you would be delighted to be discovered but you may not be happy being reduced to discounts and deals.
It makes you look under-confident
Heavy discounting might erode your reputation and your customer’s trust in you and your products. It’s again a question of value. The moment you become a part of the discounting herd, you become just one of the many. This may result in not only discounting your unique value proposition, but making customers question your belief in your own value proposition and trusting you entirely.
It eats your profit margins
And it makes you cut corners. It’s no rocket science that deep discounting sizably reduces your margin compared with selling your products at a full price. In order to make up for the loss you are tempted to cut corners by reducing material costs which might result in taking the value of your product further down.
It sets a bad precedent
Once you make your products available at heavy discount and customers get used to it, why would they pay more if you go back to selling it at a higher value. No one would. Blindly following the trend and indulging in the practice of deep discounting sets the wrong precedent for your customers and affects your future hopes of maximizing profits adversely.
Creativity to the rescue
While the #logout campaign may or may not have affected the aggregators’ businesses as much as it intended to, it certainly raised eyebrows and made businesses re-evaluate their position. Whether it’s the aggregators or stand-alone restaurants, the idea is to increase customer loyalty and get customers to discover these restaurants. While the intention is clear and the purpose brings both businesses and aggregators on the same page, the need of the hour is to think of more creative ways to turn the ‘hunt for deal’ into ‘hunt for value’ without hurting customer’s expectations. Deep discounting needs a transformation and should come out as fair discounting, and equal efforts should be made by both the parties to ensure the re-emphasis of value. Business and online platforms need to come up with more creative ways of repurposing their brands, where discounting becomes just one of the cogs of the whole idea.
This article was originally published by Rishabh Vyas on Entrepreneur
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