The REAL Repercussions of Discounting

Yesterday I shared an article across social media channels from entrepreneur.com, titled, Groupon, Other Deal Sites Not a Good Deal for Small Businesses which noted that not only were up to 80% of deal buyers already customers of the businesses whose offers they purchased, but more than half of them also said they'd have made the purchase without the discount. If you are determined to play the groupon game, do so with caution and set parameters to protect your business and its reputation.

Once posted, Darryl Manco (the owner of Dimension A Salon in San Francisco, CA and google-certified Internet Marketing Analyst who holds a masters in Internet Marketing) pointed me to an article he'd written which details what the real consequences of discounting are to most businesses. I asked if he would let me share this with you here on the blog and I'm so happy he agreed. His summary should open your eyes and make you think twice before significantly redefining your brand, your reputation and your business through discounting. Here's what he wrote:

The Real Repercussions of Discounting
11.10.2011  - Darryl Manco, Owner, Dimension A Salon


There seems to be buzzing these days among salons about doing the discount thing. Now, not all salons do discounts; however, for those that do, here are some concerns that should be weighted before diving in:


1) Diminishing ROI
    a. Erodes bottom-line return.
        i. Supply costs do not go down.
       ii. Fixed operation costs do not go down.
      iii. Variable operation costs go up.
      iv. Commission splits do not go down.
       v. Payroll costs do not go down.
      vi. Atrophy of brand reputation.

2) Target Audience Effect
     a. Traffic partner target audience assumptions.
        i. Business failed to clearly define their target audience.
           1. Failed understandings about psychographic traits.
    a. Broadened target audience’s focus is on the next best deal.
II. Brand reputation rot
1. Business is unable to satisfy unforeseen challenges due to misinterpreted target audience.
    a. Loss of exclusivity.
        i. Quality becomes compromised.
           1. Value collapses brand image.
           2. Business fails to roundup employee cohesion.
    a. Talent atrophy.

Salons that find reinvigoration in discounting are thus
redefining their brand’s worth.

Laura Reis (2010) affirms this by posing the question, “When was the last time a savvy consumer ventured into Bed, Bath & Beyond without a percentage off coupon?”

Yes, discount sites (aka traffic partners) can gloat that continuous discounting leads to increased abiding growth, but what they fail to disclose, is that price discounting does not lead to brand loyalty or even brand awareness.

This idea supported by Ellen Malloy’s (2010) belief that:

“Businesses risk the effect of devaluing their brand. This threatens the over all quality of the brand experience, and when over subscribed, leads to short-term demand spikes that momentarily increase revenue, but in the long-term overloads a business’s ability to meet consumer’s expectations.”

Words of wisdom to salons (or any businesses) that seek solutions:

• Examine how your ROI will be affected.
• Do masked business problems need addressed?
• How will discounting support the brand experience?
• If discounting becomes bulwark for the brand, than what does the brand in actually denote in the eye of the consumer?

Discounting may engender consumers to take advantage of a business’s brand, but will the business brand be able to respond to the seduction that discounting encircles? Discounting has all the properties to be addictive as well as cannibalistic, and befoul businesses as well as the consumers that it bewitched.

Resources:
Cohen, D. (2010, June 30). Groupon phenomenon bad for business?
Retrieved from [ reuters.com ]


About the author:

Darryl Manco is an agent of change for today’s beauty salon marketing frontiers. He holds a M.S. in Internet Marketing, and boldly participates in commanding his business, Dimension A Salon, with direct to consumer online marketing programs that impact ROI.