Quick fix can backfire
Money Magazine Australia|September 2020
Quick fix can backfire
Giving customers a discount sets a risky precedent that can harm your profitability, so consider other options first
Anthony O’Brien

Discounting may seem like a good strategy for your small-to-medium enterprise (SME) in these challenging times as it’s a quick fix to nail down some sales and keep cash flow ticking over. Already two in five (42%) Australian businesses have had to access support measures to manage the impacts of the Covid-19 pandemic, according to the latest research from the Australian Bureau of Statistics.

For small businesses, however, discounting is a strategy that can backfire in the longer term, especially if your SME is already working with clients doing it tough. More than 70% of businesses in manufacturing (78%), wholesale trade (74%), recreation and personal services (83%), information media and telecommunications (75%), property and business services (74%) and transport, postal and warehousing (72%) have been affected by Covid-19 to some degree, researcher Roy Morgan reported earlier this year.

Look at other options

When you offer a discount, whether it’s a first engagement with a customer or for a long-term client, there’s no going back once the offer is made. As soon as you drop your price, your customer will expect the discounted price to continue – or they’ll hold out for another special offer. Worse still, they may not buy from you until the discounted price or fee is back on the table.

Although a discount might seem like your only option to win over or keep a client, it’s not. Moreover, you don’t want to set the precedent that every time your client commissions work from you or buys your product, it’s at a reduced price. That is simply bad business, says Anne Nalder, founder and chief executive of the Small Business Association of Australia.

“As a general rule, I am not in favour of discounting. The retail sector has shot itself in the foot with continuous sales. This erodes the profit margins and has done nothing to help that sector,” she says.

Another major rub with discounting is that the more you drop your prices, the greater the volume of widgets, houses or gym memberships you must sell to stay afloat. “By discounting, you are eroding profits, and your small business needs money to function,” says Nalder.

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September 2020