Coupons and discounts can harm your business – there is no denying it. There was this guy with an online business offering vacations – all sorts of vacations anywhere in the world, and you got a free discount coupon as an introduction. He got lots of business in his first few weeks of launch, and then he had to cut back on the offer because it was costing him money.
The trouble was, he got paid for each vacation sold – he didn’t get all the backend sales from the cruises and restaurants – cash spent in the bars, restaurants and casinos. He was giving all his earnings away in discounts.
That’s one reason why coupons and discounts can harm your business: They can work fine when there are backend sales and up-sales coming from the promotion but if the payment for the vacation is all you are going to get then you are giving away your own income. Not only that, but most will never come back and pay the right price.
Which brings us to another problem, particularly with offline businesses that rely on the public such as hairdressing salons, beauty salons and other forms of service industry – give discounts or coupons to new customers, and they will look upon what you charge as the base price. Try to increase that to the correct price next time and they will think you are cheating them.
And what about your existing clients – what are they going to think when they are paying full price and others are paying half as much? You are ripping them off, that’s what. Isn’t that what everybody thinks when they see sales and massive price reductions?
“If they can make money at that price think how much they were making from us before!”
You also have the problem of looking cheap. Discount coupons cheapen your business name – you get everybody coming into you store or your salon looking for cheap prices. Word gets round and before you know it the discount is regarded as the norm and your margins go down the sink hole. Since when did you see Prada selling cut-price goods? You won’t get 50% off a Mercedes!
You attract the wrong customers – you get the bargain hunters who will never pay the right price, and you also chase away your regular clients who refuse to pay the full whack when others are getting reduced prices.
Discount coupon companies will persuade you that your marketing costs will drop, but they don’t point out that every reduction is coming from your bottom line. Nor do they tell you that you’d better buy a whole bunch of the coupons because everybody will want one – add up the coupons and then add up the lost profit from all these discounts. First you have to buy the coupons – then you give money away when you distribute them? Does that make sense to you?
So when can coupons and discounts help your business?
Let’s say you have a hotel: you can offer a coupon for a weekend stay. All the recipient has to do is buy their evening meal in your hotel. They will also likely pay for breakfast as well, and a few drinks at the bar, so you are making good money in return for the discount.
You have a restaurant and offer a coupon for a free sweet, or a discount on a three-course meal equivalent to the average price of the sweet – or maybe a coupon for a free bottle of wine. The diners will likely purchase more drinks and you make money on the food and the drinks.
You could offer these vouchers with each meal after 7 pm, or even make a 2 for 1 offer on selected meals between 3 pm and 5 pm. That way your existing customers can’t complain, because they can get in on the offer as well, and new clients might like your restaurant and will return for an evening meal some other day.
Notice the difference? Now you are making your coupons and your discounts work for you. You are not losing money on it, and are using the coupons and discounts as a marketing technique to make money on the back sales and also advertising your product. You could offer a room upgrade to coupon visitors, for example – use your brain and you can make discounts work for you.