Most businesses use sales, coupons, and promo codes to temporarily increase demand for their products or services. In this article we explore some of the pros and cons of offering sales, coupons, or promo codes and the positive and negative effects they can have on your brand.
Instant Spike In Demand:
The effects of having a sale are often instant and give you immediate gratification. Due to constraints on sales such as "limited window of time" or "as supplies last" there is a sense of urgency surrounding sales. This can cause an almost instant uptick in traffic bringing more potential buyers to the table. Sales are able to do this because it is a lot easier to change the price attribute of an offer than it is to change more permanent attributes like color or material. Promotions and sales can be a great way to see instant results from your efforts.
Leverage Existing Expectations Of Holiday Sales:
Today, it is almost impossible to think about Thanksgiving without thinking of Black Friday, Christmas without car sales, Fourth of July without Prime Day, and Easter without the day after candy bonanzas! With every major US holiday, we find somehow to pair it with good old fashion commerce! Holidays are a time where sales are so common they are almost expected. Those times of year can be a great time to hop on the bandwagon and offer sales while consumers are actively in pursuit of the next great deal. My favorite part about holiday sales are that they are often accepted and seen as a one time thing. Unlike other "made up" sales events companies use to bolster sales, holiday sales are less likely to cause a sales dependency in your customer base. Holiday sales are also great because they often correlate with the changing of the seasons. This allows you to move older or discontinued stock at a discount as you switch gears within your business.
You Can Track Your Customers:
One of the most underrated benefits of promo codes is the ability to track your customers. This is an invaluable tool that not many online sellers use, but almost every big box store or large merchant does. You can generate all kinds of promo codes. These promo codes can be unique to different advertising channels, pages, social posts, blog posts, etc. and can be used to find out where your traffic is coming from. If you know what code was used, you know your traffic source. You can then reevaluate your ad spend and make sure you are spending time and money where it is most impactful. Promo codes can help you fine tune your business' targeting strategy.
Help Introduce And Promote New Products:
Often times, when you are launching a new product on a third party marketplace or store, the item can lack reviews as well as consumer awareness. Since many marketplace algorithms weigh heavily on sales velocity, it is important to sell as many units as you can as quickly as you can. I often like to use a sale at the introduction of a new item or product line as it rewards my first customers and builds a steady sales velocity for the sales channel to analyze. I find that this discount can counteract the effect of having few or no reviews and can help you get your initial purchases and reviews to give the algorithm exactly what it wants early on to catapult you to the front page!
Reach Customers That May Not Buy Otherwise:
One of the other benefits of using coupons or sales is you might just reach someone who would have not bought your product otherwise. There are tons of people out there who don't buy things unless they go on sale. These people are bargain hunters and will often be looking for the lowest price possible. A sale makes these people feel thrifty and gives them permission to spend on a luxury or even an essential that they have put off purchasing because it was a "deal." These people often will never pay full retail price and the sale is the only way to incentivize them to purchase.
Sales Cheapen Your Brand:
I am a firm believer that sales cheapen your brand. Ask yourself this question. If I am willing to sell a $100 item at 30% off this week is it really worth $100 or is it worth $70? I think of this with clothing stores and car dealers. No matter what your favorite clothing store says that sweater you love was never worth the full $69.99 retail price. Yet we accept their endless barrage of sales and discounts. With every sale you signal that you are willing to take less for your product and that you don't really value it at its true price. This also shows that your usual margins are high enough that you can tolerate a sale price and this can make customers who purchase during non-sale periods feel taken advantage of or even cheated.
Sales Can Be Timed:
If sales are ran in a predictable way, consumers will time them to maximize their value. Think of it this way: Would you buy a TV the week before Black Friday? How about a car a few days before Toyotathon? Like most people, you would probably wait the extra days or even weeks to get a better deal. This is how consumers think. If they know they will be getting coupons in the mail the first week of next month, or if they know your monthly newsletter always has some sort of discount they will avoid purchasing now and wait for the discount when you make less margin. This can present challenges to your logistics capacity, and cost money or time to run the promotion. If you are going to run a reoccurring sale think about the consequences of doing so. Depending on your business this may be a valid tactic, however for some businesses it can have a negative effect.
With increased attainability people outside of your target segment may buy your products just because they are getting a deal. These customers may not be representative of your brand and may have long-term effects on how your brand is perceived. For example, if Gucci were to have a large sale, people outside of their target market could purchase their goods and make them less exclusive and aspirational. This is the same reason some high end fashion brands don't sell their overstock to closeout retailers like TJ Maxx. That would greatly change the overall perception of the brand and could negatively effect the brand going forward.
Sales Can Lose You Money:
A common misconception is that sales are always profitable and a good way to make more money; however, this is not reality. In order to have a sale or promotion you need to make others aware that the deal is going on. To accomplish a successful sale, it can take substantial amounts of time and money and these things can often outweigh the benefits. For example, imagine if you spend $1000 advertising your sale and your marketing team works on it all week. You run a 30% off sale and your regular mark up is 50%. If the sale goes poorly and you only sell $4000 worth of goods, you could actually end up losing $200 before accounting for lost labor. What makes this even worse is you may have sold $1000 on a non-sale day that would have resulted in $500 profit. In order for this example sale to have been worth running, you would have had to sell over $7500 in goods which would have been a 7.5x increase in sales. It is important to know both where your breakeven point is as well as the number at which a sale outperforms a typical day before you have a sale. Sales can be great tools when used correctly, but can be quite devastating when used without acknowledging the risk.
Should You Use Sales, Coupons, & Promo Codes?
The answer is it depends. This answer depends on you, your business, and your objectives. Some industries use sales more than others and many companies have made massive fortunes on the back of promotional offers. The key is to keep in mind all the pros and cons discussed in this article when deciding whether or not to utilize a sale as well as other potential pros and cons that may be specific to your business. No one knows your business like you do and that is why you are the best person to decide.