One of the main reasons a business would offer a discount would be in the hopes of increasing the number of orders received. Potential clients may very well decide to go with the service provider or buy the product that is advertising a 10% discount even if the discount only brings the final price down to a level that is equal with yours. This is because the customer views the product or service of the competition as having greater value. For instance the customer sees they are getting a $20 product for $18, instead of simply getting an $18 product. The discounted product appears the better of the two because it appears to be worth more.
In this way you could see a higher sales volume. Even though each sale makes you 10% less, if you sell ten discounted items instead of one full priced item, you are still much better off. Again, looking at a $20 item, if you sell it at full price you bring in $20. If you sell ten of these at a 10% discount, you bring in $180. You 'lose' $20 over all but have bettered your sales by $160.
Discounts like this are not effective if run continuously. People will see it as a trick. The timing needs to be carefully chosen, coinciding perhaps with traditionally lean times. You also need to consider your running costs in offering your discounts because materials still need to be paid for, and you need to be paid for your time. But where it is possible to offer a discount, it may help to increase incoming orders.
Another important time to consider offering a discount is when you have stock to move from the previous season. Such items as winter clothing at the end of the Spring time, or Summer clothing when Autumn rolls around, are unlikely to be sold as they will not be used till the following year.
At this point you have the choice of either storing them long term in the hopes of selling them the next year, while risking the styles not being current when the season comes around again.
Instead, by marking them down to closer to the material costs, you are at least able to buy the new materials or stock that you will sell during the current season. You are not left with the problem of having to store things for the best part of the year, and don't have to keep track of older items.
Discounts are not all about pleasing your customers, although of course they very well may do so. A happy customer is more likely to return to you and buy or use your services at full price later. Using discounts to your advantage can help to build a loyal customer base, while minimizing loses through old stock, or due to slowdowns in your trade. There are no guarantees that discounts will work, but with a little experimentation you might be able to find a happy medium between yours, and your client's needs.
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