The Hidden Dangers of Discounts and How to Effectively Manage Them

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Recently, I was able to evidence that more than 70% of brands had some form of discount in a research I did on women’s jeans in Colombia. In the competitive world of marketing and sales, discounts have become, apparently, the main strategy to attract customers and increase short-term sales. However, the frequent implementation of deep discounts can have adverse consequences for both brand perception and consumer behavior in the long run. In this article, I explore the negative effects of this practice and offer recommendations to maximize the effectiveness of discounts while minimizing their risks.

Frequent implementation of pronounced discounts can have adverse consequences for both brand perception and consumer behavior in the long run.

Negative effects of deep or frequent discounts

Reduction in perceived value

Recent studies like this one demonstrate that significant discounts can alter the consumer’s perception of value, quality, and savings of products. Consumers may start to associate lower prices with inferior quality, eroding the brand’s perceived value.

Strategic consumer behavior

This other research highlights how frequent discounts can incentivize strategic behavior by consumers, who may postpone purchases in anticipation of future promotions, affecting regular sales and brand loyalty.

Erosion of brand equity

Killian Branding’s analysis underlines how discounts can destroy brand equity in the long term. Powerful brands are those that can defend higher prices without relying on discounts, reflecting a strong value proposition based on perceived quality and customer loyalty.

Recommendations for effectively managing discounts

Offer strategic and limited discounts

Implement discounts strategically and occasionally, focusing on specific goals such as introducing new products or clearing seasonal inventory, without compromising the overall brand perception. For example, a clothing store may offer a 20% discount on its new collection during the first weekend of launch. This approach attracts customers to try the new line without devaluing the brand in the long run.

Improve the perception of quality

Before, during, and after the special offer, it is crucial to reinforce the product or service’s perceived quality. This can be achieved through communication campaigns that highlight innovation, durability, and overall, the unique benefits of the product. In this case, an appliance manufacturer could launch a promotional campaign for its new blender, but at the same time highlighting unique features such as its energy efficiency and extended warranty, thus reinforcing the perception of quality and justifying the discount as a limited opportunity to acquire a superior product.

Handle more personalized and segmented offers

Instead of applying generalized discounts, focus on personalized and segmented offers targeting specific consumer groups. This can help reduce the negative impact on value perception and foster a deeper connection with certain segments of the target market. In this sense, Spotify offers special discounts for students, based on the analysis of their purchase behavior and preferences. This minimizes the impact on the general value perception while targeting a specific market segment.

Provide added value instead of price reduction

Consider strategies that offer added value, such as extended warranties, improved after-sales services, or product bundles, instead of merely reducing prices. These strategies can strengthen brand equity and improve customer satisfaction and loyalty without devaluing the product. For example, a car dealership may offer free maintenance or additional accessories when purchasing a new vehicle instead of directly reducing the price. This adds value to the purchase without compromising the vehicle’s perceived value.

Maintain clear and consistent communication

Keep clear and consistent communication about the benefits and quality of the product, ensuring that discounts are perceived as a special or temporary offer and not as a devaluation of the product or service. For example, a cosmetics brand can use its social media to announce a temporary discount on selected products, highlighting that the offer is due to an excess inventory or a change in the product image and not a lack of quality, thus maintaining the value perception.

Monitor and analyze the results

It is vital to monitor the impact of discounts on sales, brand perception, and consumer behavior, adjusting tactics as necessary to ensure that the brand’s long-term objectives remain aligned with promotional practices.

These examples illustrate how brands can implement discount strategies in a way that stimulates short-term sales while protecting the integrity and value perception of the brand in the long term.

Offering discounts is not bad in itself. It’s offering discounts indiscriminately and without measuring the consequences that is problematic.

Conclusion

While discounts can be an effective tool to boost short-term sales, it is essential that brands carefully consider the potential adverse effects of their implementation on the market and customer loyalty. Balancing the generation of immediate attraction and maintaining long-term value perception is key to a successful discount strategy. By adopting a measured and considered approach, companies can use discounts not only as a tool to boost short-term sales but also as a way to strengthen their relationship with their customers and improve their brand’s equity in the market.

I invite you to share your opinions and experiences on the use of discounts and their impact on the perceived value of the brand. Have you noticed changes in your buying habits or how you view brands due to discounts? What strategies do you think brands should employ when offering discounts without affecting their perceived value?

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