My Take on Discounts and Small Business...

It's been a while since I've posted something on small business.  Given the time of year and Etsy's new seller tool (coupon codes), I thought this topic was appropriate.


Discounts....Coupons....
Yup, I love them!  As a Mom of two I am constantly hunting for deals that will save me a buck or two.  I clip grocery coupons, I shop online and utilize Upromise, coupon mountain and every other money saver I can find and I am so happy when I uncover a great deal on everyday products.  I even took advantage of Black Friday deals for my holiday shopping, as I'm sure you did as well.

Although I do love the coupons, I know that there are places where I won't find one.....My favorite Italian restaurant....the upscale hair salon I love, the tiny health food store in my town, all the high-end designers who are excluded from all those Macy's coupons (that paragraph of fine print on the back), Apple (no iPad discounts to be found) ..and a bunch of other places.  But you know what - that's OK!  These places are successful without them.  As a matter of fact, I would be suspicious if they started offering them.  It just wouldn't make sense.

Why am I talking about this?  Because this is the time of the year when I get lots of inquiries on whether I ever offer coupons or discounts in my Etsy shop.  The answer is "No".  Since the day I have opened I have never offered a discount nor a coupon.  Now before you go thinking - "Oh, she's just full of herself", let me explain.

First of all, Sewplicity™ is not a huge chain store (like you didn't know that!).  No, really....discounts and coupons are how many of the large retail chains draw business and compete in the market place.  As a matter of fact, many successful retail stores are built on that business model.  Think Target "Buy more, spend less", or Walmart with their "rollbacks".  These stores buy all of their products for cheap and mark them up TREMENDOUSLY.  They then offer deep discounts and coupons which still allow them to make a decent profit.  And even if they they lose some money on a product or two, it will not affect their bottom line because of the size of their business.

Now take me or any other small manufacturing/retail business for that matter.  We depend on our profit margins to keep our businesses afloat.  We don't have the wiggle room that a large business has.  We don't have the ability to mark up our products the way a large retailer does.  We NEED to pass along the production costs of our products to survive.  And then you have the cost of business....supplies, utilities, listing fees, commissions, etc.  Hopefully you can even add a little in for your work time.  The smallest discount can have a very large impact on our bottom line.

But that's NOT THE ONLY reason...

Discounts and coupons have risks
>They can hurt your BRAND
>They can destroy your VALUE PROPOSITION
> The SHORT TERM GAIN can have LONG TERM CONSEQUENCES

Take a closer look:
I run a mostly custom order business in a very small niche marketplace.  The person purchasing my product is spending their hard-earned money on a an item with the expectation of it's quality and backed customer service. 

Say for one day I offered a 20% discount on my product, several things may happen:

If advertised well, I may get increased sales for that day - Great!  I may even have a few customers purchase the item that wouldn't have purchased it without the discount.  Great!

But now what? 
People who shopped the sale but didn't purchase would probably not want to purchase the following day because they know they can get a better price if they wait for the next sale.  The product is no longer worth its original point.  Hmmm...LOST SALES there.

People who shopped prior to the sale feel ripped off.  They paid 20% more for an item than what they could have gotten it for.  DISGRUNTLED CUSTOMERS there....no way they are coming back, nor telling their friends about my shop....LOST ADVERTISING there.

When coupons and discounts are offered  people would be hesitant to purchase the product at regular price because they know that they can get it for less.  I just had a major LOSS OF PRODUCT VALUE.

Customers and potential customers would be constantly looking for the next "deal" instead of focusing on the value of the product offered.  The product no longer is worth the asking price because its perceived value has been lowered.

What happens next?  
 My sales decline and I am now forced to lower my asking price or continually offer discounts because I have lost Brand integrity.  I have now negatively affected my my bottom line.  Was that original sale worth it? 

I'm not saying this is the ideal model for EVERYONE.  Coupons and discounts absolutely have their place.  They are great for moving excess inventory.   They provide an excellent venue for selling irregular/damaged/return items that can't be sold at regular prices.  But the tactics behind them need to be well thought out and planned.  I do offer SALE items in my shop for these particular occasions, however I NEVER de-value my regular products.

So how do you promote your business without coupons or discounts? 

I may not discount or offer coupons, but I definitely promote.  Instead of discounts on my products, I often offer reduced, free or free upgraded shipping.  This is a great way to entice customers without affecting the value proposition of my product or my brand.

A great promotion is "Free gift with purchase". Think Estee Lauder.  They spend millions every year giving away their free gifts! I have also sent "thank you" gifts to repeat customers.  I can guarantee that I received word of mouth marketing using these promotional tactics.   Believe me customers LOVE free....it doesn't even have to have a high dollar-value...you can use this promotion to move inventory, or even excess supplies.  Just make sure the item(s) your giving away makes sense.

So....this is what works for me.  This is why you will never find a coupon or discount in my shop.

If people purchase from you because of the quality and customer service TRUST ME...they understand that neither of these can or should be discounted.  Just like the Italian restaurant or the hair salon.  It would be weird if they offered coupons or discounts....it wouldn't feel right....it would make me wonder - "What is going on, why are they doing that....what is WRONG?

You don't NEED to rely on Coupons and Discounts to be successful, and for a small business, you shouldn't!  Build up your brand, stand behind your product and promote in ways which communicate the value of your business. 

Do you want to read more?  Here are some links:
Marketing Profs
Brand Makes A Difference