September 9, 2020

are discounts bad for business

Are discounts bad for business?

Just like they could boost sales for a while, it could KILL a business if you’re not careful. 

At least, according to multiple New York Times bestselling author Simon Sinek, who has devoted his life to studying consumer behaviour. 

Start With Why by Simon Sinek delivers punch after punch about why discounts are bad for business.

Here are 3 reasons that stuck out to me (and probably why I’m never going to run a sale ever again.) 

1. “I don’t feel so good, Mr. Stark…”- Your brand, after every sale. 

“It’s sales time–everything is 99.99% off!” 

“Storewide 50% off! Buy everything, because our website might just disappear tomorrow!” 

That’s what many brands sound like when they’re running mass discounts. 

Pushy, desperate, and just all out forgettable. 

When a brand puts too much emphasis on price, other parts of your brand disappear into the deep, deep void. 

Are you the first and only type of business in your city? 

Does Bill Gates himself use your product first thing in the morning? 

Nope, none of that gets highlighted. 

The only thing people care about is that you’re offering a discount, and that’s all you’ll be remembered for. 

So when you do eventually stop the discount period, or raise prices for other reasons, don’t expect your past customers to look your way. 

On the other hand, putting emphasis on real value, on real customer testimonials works much better across all situations. 

I hate using the words ‘justify your prices’…but in essence, you’re explaining to potential customers why your service or product might cost a tad more than the rest. 

2. You’re choking your profits! 

More sales might kill your sales. It’s sales-ception! 

But seriously. 

Ever heard of General Motors? If you haven’t, they’re a car manufacturer in the United States–one that largely dominated the space for 50 solid years. 

What they didn’t expect though, was the entrance of Toyota (a small-time foreign nobody at the time) almost double their shares in the US. From 7.8% to 16.3%! And in 2008, GM found themselves living a nightmare that seemingly came out of nowhere. 

Americans were buying more foreign cars than they were American-made ones. 

GM knew they had to buck up. 

But instead, they just f*cked up. 

How? 

GM made the grievous mistake of offering cashback incentives (anywhere from $500 to $7,000) to customers who bought their cars and trucks. 

Sales were up for the first few months, but just when fat cat executives thought that they were out of the woods…

…GM found themselves losing around $729 per vehicle. LOSING. 

It was a lousy idea. More specifically, lousy and dangerous

Noticing this, GM reduced the incentives they offered, which obviously, made their cars and trucks less appealing to the market.

Or at least, compared to the quality they could get with a Toyota, or a Honda. 

You might already have guessed where this story is going. 

And if you’re asking yourself, “Wait. Are discounts really bad for business? Like thaaaaat bad?”

Sales dropped, dropped, and kept on dropping until GM’s net loss became a sad $38.3 billion in the red. 

Moral of the story? 

Simon illustrates how this obsession with a short-term/lash-out-at-your-competitors-fast attitude kills a business faster than you can say “pro-mo-tion”. 

Poor GM. 

Their story has been used as a warning against all brands, companies, and businesses who dare to repeat this stupid mistake. 

So. Don’t ignore it now. 

3. You’re manipulating, not inspiring. 

“When companies don’t have a clear sense of why their customers are their customers, they tend to rely on manipulation.” 

Simon Sinek, Start With Why

To him, he says that brands manipulate by doing things like – 

  • Peer pressure 
  • Sales/promotions 
  • Fear 
  • Novelty 
  • ‘Fake’ aspirations 

Think about when you’ve been the most motivated to hit the gym. 

May? September? December? 

Nope. It’s in January, right? 

That’s when gym, fitness center owners become gazillionaires (for at least a few weeks). 

Gyms ramp up their marketing, subscription, and sales promotion efforts to attract the vulnerable of the vulnerable…

New Year’s Resolution junkies, e.g, the ones more prone to fake aspirations. 

They sign up for a January subscription, and that trickles down to February…

But by March, their gym clothes are eaten by dust mites in the back of their closet. And their subscription ends up being another wasted purchase.

The chances that they’ll continue their subscription for April, May, and so on drops extremely low.

And poof! The fake aspiration to get a ripped body is gone–and so does a gym’s entire ‘January sales campaign’ strategy. 

On the other hand, inspiring your customers looks a little bit different. 

And no one does this better than Apple. 

Simon Sinek worships Apple. 

He worships their strategy, their advertisements, their message. 

But most of all, he worships their purpose. 

“Apple’s ability to design such innovative products and their ability to command such loyalty for their products comes from more than simply WHAT they do…” 

“…It’s WHY they do it.” 

Simon explains this using the Golden Circle Rule; which is a fantastic way brands and businesses can replicate Apple’s success to get their customers hooked. 

I break this strategy down clearer here. 

It’s extremely rare that Apple themselves advertises a ‘storewide sale’ or ‘50% off everything while stocks last’. 

That’s what the likes of HP or DELL does, quite frequently too. But rarely Apple. 

Albeit their products are priced higher, and literally pale in comparison in terms of specifications. They’re always able to sell out, always able to have Apple-cult fans sleeping in the snow outside a store during a release. 

And all, with simply enforcing this one strategy. 

But I’ll Just Do This Once! 

Simon knew that there would be business owners going; 

‘Ehhhhh, I’ll just do this during Black Friday or Cyber Monday. Even if discounts are bad for business, it won’t hurt that much.’

‘Well, wtf else am I supposed to do dude? I’m a small business. This is the only thing that works for me!’ 

And you’re right. Simon writes, “The dangerous thing about manipulation is, that it works.” 

So if you’re relying on sales, discounts, and overall manipulation to increase sales, they just might. 

In the short-term. 

If you have a gunshot wound and tie a cloth around it, it’ll keep you from bleeding out. 

But it won’t change the fact that you have a whole bullet inside of you. 

Running a business that’s only kept afloat by random price cuts, fear-based marketing, peer pressure or cashback incentives is like walking around with multiple pieces of cloth tied to your gunshot wounds. 

Deep down in that little soul of yours, you know your business has holes in it. It’s broken, or it doesn’t provide actual value. 

So you’re addicted to cheap sales and discounts that keep it afloat. 

You don’t take the bullet out, nor do you admit that you’re bleeding. You’re just looking at the fact that you’re NOT dead (yet).  

And that’s why the more you take shortcuts, the harder it is to kick the habit. Especially if the habit is (falsely) working for you. 

Fast forward a bit more, and you know that discounts are bad for business.

But by then, it’s too late.

What Should You Do Instead? 

Before you go ahead and call me a Negative Nancy for pointing out all the things to NOT do…

…Know that not all hope is lost. 

Your sales strategy doesn’t have to manipulate in order to work. 

Things you could do to effectively boost sales and still maintain your brand’s reputation would be things like; 

Narrow down your target audiences.

Don’t be unfaithful to your one, true love.

If your most successful target audience has been stay-at-home-moms ranged 28 to 45 or reptile lovers staying with their mother…

…Don’t stray. 

Many people don’t realize this, but consistent messaging is the best way to sell without selling

To promote without an actual promotion

I stress this all the time in my workshop. To sell without selling (or sounding like a greasy, desperate salesman) is a skill that millions want, but very few have. 

Of course, I was lucky enough to get the hang of it. 

So when I started my workshop, I made sure it was a safe space for marketers to start learning this as well. 

What do they struggle with the most? Do you know their hidden dreams? Can their dreams be achieved if they buy your product? 

Once you have that figured out, be as dominant as you can in this one industry. 

Mirror their lifestyle and tailor your advertising to ONLY what they want to see.

Harley Davidson, the motorbike company has created such a strong sense of purpose amongst their community–that their customers even tattoo its company logo on their bodies. 

The same goes for the streetwear brand Supreme. Tattooed fans lining up outside of stores, superfans with over $5 million dollars in a CLOTHING collection. 

Like Simon so effortlessly said…

“People don’t buy what you do. They buy WHY you do it.” 

So, Start With Why.

And once you’ve figured that out (and realise that discounts are bad for business…)

You’re on your way to becoming the Top 1% in your industry. 

Need a blueprint so you can get this done faster? 

I breakdown Simon Sinek’s ‘Golden Circle’ rule that he uses to consult million-dollar companies on their way to profit. 

You might not have the time to read Start With Why. But even taking a peek at this article might be the best thing you do for your business this year! 

About the author 

Reeve Yew

Reeve is the CEO and a Member of Forbes Business Council.

He has spoken on stages, both online and offline, alongside world class entrepreneurs and marketers like Gary Vaynerchuk, Brian Tracy, Kevin “Shark Tank” Harrington and Mark “Godfather of Internet Marketing” Joyner.

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  1. Know what you mean. Ran a sales promotion during quarantine, sales were okay…but till now receive people asking for 'promotions'.

    If entrepreneurs were to always run sales, we will start losing money.

  2. Reeve! Do another article on what biz owners should be doing instead!!

    (2000% agree with this–sales if done wrong can be really dangerous.)

  3. Discounts are a way to "bribe" customers, imo. It's like saying "Hey, we have no real value to our business…so let's blind everyone with low prices."

    Not a good way to keep a business alive!

  4. But what happens is your business is small? How do you compete against companies with lesser prices (cause they can afford it)

    Sincerely,
    Concerned Small Biz Owner

  5. I tell everyone that asks that discounts are bad for business.

    Feels good at the start, (especially if you participate in Black Friday etc) but it poisons. Now, everything you do will be geared to making the item the cheapest as possible.

  6. Do you think giving discounts for first-timers are bad too? I have an online yoga accessories store that gives first buyers 15% off, that sort of thing to get them to shop with us

  7. Kinda mixed feelings here. I know discounts are bad for business if you do it too often, but sometimes I guess it attracts a few eyeballs here and there

  8. Customers are addicts to sales and promotions. If you own a business, get ready for those pesky questions after a while

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