The Pros and Cons of Giving Discounts

Date: April 14, 2009

Customers will ask for discounts for reasons ranging from paying cash to placing a large order to seeing the product cheaper elsewhere. So is it a good idea to give into their demands or not? Take a look at the pros and cons before you decide.

Pro: Making the sale when you wouldn't otherwise
In some circumstances, making a discounted sale is better than making no sale at all. If it seems clear that a customer will go elsewhere unless you give in to a request for a discount, ask yourself how badly you need that particular sale. One large sale, even when discounted, can sometimes be the difference between a profitable month and an unprofitable one.

Con: Cutting profit margins
Any time you sell your product or service for lower than your asking price, your profit margin goes down. If you can hold out, you might be better off waiting for a customer who is willing to pay full price. 

Pro: Building stronger client relationships
Granting your customers the discount they request will certainly improve their loyalty to your store, and next time they want to make a purchase they'll hopefully return. Not only can giving discounts create return business, it can also generate positive word of mouth and build your reputation as a community-minded business owner.

Con: Setting up a harmful precedent
Even if you tell customers the discount is a one-time occurrence, they may ask for one the next time, too. If you refuse, their loyalty to your business might prove fleeting. Only give a discount if you don't mind being asked for more deals in the future.

Pro: A few discounts won't hurt the bottom line
Rewarding loyal customers here and there certainly won't cut that deeply into your bottom line. In fact, giving discounts could even strengthen it by promoting returning business and sending new clients your way.

Con: Customers may compare prices
If some of your loyal customers who aren't getting a discount talk to a customer who is, they will wonder why they haven't received the same courtesy. These clients might demand a concession the next time you see them, and you will be forced to comply or else risk losing their business. Many people enjoy sharing the news when they get a good deal – don't imagine that your clients will be an exception.

One of the best ways for business owners to solve the discount dilemma is to set up a unified discount program. For example, you could give all customers 10% off on orders totaling more than X amount of dollars. Having a pre-existing discount program allows you to treat all customers fairly and saves you from having to make markdown decisions on a case-by-case basis.

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