Last Updated: Aug 3, 2016
Coupons are often used to attract new customers and entice old customers to come back. At first glance, offering coupons might seem like a great idea. Before you begin discounting, consider these pros and cons.
So now you have your product or service out and available to the public. You’ve set your prices, calculated your budget, and know all too well your business’s overall bottom line. But despite your best efforts and your tireless planning, you cannot seem to attract enough customers. Maybe it’s time to consider offering a promotion or coupon.
Your first reaction may be to see this as quite obvious. Your business offers a discount and potential clients will see this as a low-risk opportunity to try something new. But there are some concerns that ought to be addressed when considering as to whether or not your business should offer a discount or coupon in the first place. Here is a list of the pros and cons involved in this decision.
Let’s look at some key pros first…
Meeting Expectations. According to a recent survey conducted by RetailMeNot in conjunction with The Omnibus Company, 96% of shoppers reporting having used coupons within the last three months. This report shows that the majority of shoppers are expecting a discount or coupon. Offering coupons and promotions has now become a normative aspect of running a business.
Competition. With the exception of a relative monopoly, chances are your business is facing some stiff competition. In this market, businesses must fight for a customer’s attention. Most consumers are shopping around for the best deal, and having your business offer a discount may just bring you the competitive edge against your competition that you’ve been missing.
Customer Incentive. It is logical to assume that a customer is more likely to try or experiment with your product or service when a discount is offered. It can offer a potential customer a low-risk opportunity to test out a new product or service for the first time.
Ease of Distribution. In our modern era, producing and distributing coupons is now easier and faster than ever. A coupon can easily be shared via social media, email, or through one of the many coupon websites. This can also serve as a form of free advertising for your business.
And now a few cons:
Cutting Profit. One common concern is that introducing a discount or coupon will just subsidize a purchase the consumer would have made either way. Depending on your particular industry, this is a real concern that needs to be addressed when considering this decision for your company. However, the pitfall behind this assumption is the failure to recognize the new customers that such an offer could attract. Coupons and promotions can often attract new customers, and instill a sense of loyalty in your existing customer base.
Margins. When setting prices for products or services, one factor that must be considered is the cost. When introducing a coupon or discount, cost is an important factor to consider. A coupon will effectively lower the price, but cannot lower the cost. It may be beneficial to offer a discount to attract customers, but it is important to always consider your bottom line.
Sustainability. Some customers may only redeem the coupon, receive the product or service, and may never return again. Perpetuating a series of coupons and discounts in this manor may only lower your monthly revenue, and it may not result in return customers.
Crowding. One common concern is that your coupon strategy may work too well, and may crowd out those existing customers who pay full price. This is especially relevant for businesses whose products or services are in relatively limited supply.
Ultimately, every business must carefully consider the pros and cons involved when considering implementing a new strategy or policy. Only those who know their existing client base and financial situation can judge whether this would be a move in the right direction. The key to offering discounts is to make sure it is ultimately in your best interest to do so. Therefore, you must thoroughly understand your profit margin, your industry, your potential customer base, and your loyal customer base. Then decide.
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Brad Egeland is a Business Solution Designer and IT/PM consultant and author of A Real World Project Manager’s Guide to the Successful Project. He has over 25 years of software development, management, and project management experience leading initiatives in Manufacturing, Government Contracting, Creative Design, Gaming and Hospitality, Retail Operations, Aviation and Airline, Pharmaceutical, Start-ups, Healthcare, Higher Education, Non-profit, High-Tech, Engineering and general IT. Brad is married, a father of 11, and living in sunny Las Vegas, NV. Visit Brad’s site at www.bradegeland.com.