In light of recent global economic shocks, a new normal of turbulence has emerged, partly fueled by political fragmentation among nations. This heightened turbulence has led to unprecedented levels of uncertainty, impacting economic growth, as highlighted by the International Monetary Fund and the World Uncertainty Index. In times of economic uncertainty, businesses often turn to discounting as a quick solution to attract customers and boost sales. However, this short-term strategy may have lasting effects on brand perception and long-term financial health. Here’s why discounting may not be the optimal response to economic downturns:

1. Lower Profits, Lower ROI

Discounting may seem like a quick fix to increase sales, but it often comes at the expense of profit margins. By reducing prices, you’re essentially giving away a portion of your potential revenue. This can lead to a decrease in overall profitability and make it difficult to maintain your current level of operations.

2. Increased Customer Acquisition Cost (CAC)

Acquiring new customers is crucial for business growth, but it can be a costly endeavor. When you discount your products or services, you may need to spend more money on marketing and advertising to attract new customers. This can increase your CAC, making it harder to achieve a positive return on investment (ROI).

3. Damaged Brand Perception

Price significantly influences consumers’ perception of product or service quality. Consistently lowering prices risks conveying the message that your offerings lack full value, jeopardising your brand’s reputation and hindering the attraction and retention of loyal customers. In contrast, reward campaigns emphasize the value your customers receive, fostering a positive perception of your brand.

4. Inability to Raise Prices Again

Once you lower your prices, it can be difficult to raise them back up to their original levels, even when the economy recovers. Consumers become accustomed to paying lower prices, and they may be unwilling to switch back to paying full price. This can trap you in a cycle of discounting, which can ultimately erode your brand equity.

5. Loss of Competitive Edge

Discounting can put you in a race to the bottom with other businesses that are also trying to attract customers through price cuts. This can make it difficult to stand out from the competition and establish a unique value proposition.

Instead of relying on discounting, there are more effective strategies for promoting your business:

1. Emphasise Value, Not Price

Focus on highlighting the unique value and benefits of your products or services to customers. This could involve emphasising quality, customer service, convenience, or other factors that differentiate you from your competitors.

2. Implement Creative Marketing Strategies

Get creative with your marketing campaigns to capture attention and generate interest without resorting to price cuts. This could involve using social media, influencer marketing, or experiential marketing to connect with your target audience.

3. Build Customer Relationships

Loyal customers are the cornerstone of any thriving business. Nurture their loyalty by implementing strategies that go beyond transactional interactions. Provide exclusive rewards that demonstrate your appreciation for their continued support. By fostering these strong relationships, you’ll lay the foundation for long-term success.

4. Align with Customer Values

Demonstrate your commitment to your customers’ values by supporting social causes or environmental initiatives that resonate with them. This can enhance your brand’s reputation and foster a sense of community.

5. Offer Rewards, Not Lower Prices

Instead of blanket discounts, consider providing targeted incentives or promotions with specific rewards tied to customer actions or purchases. This could also be tied to specific customer segments or during certain periods. This can help you attract new customers without sacrificing profit margins

Businesses that navigate economic challenges through strategic reward campaigns will emerge stronger in the long run. Resist the allure of discounting and focus on constructing a robust brand that consistently delivers enduring value to your customers through rewarding experiences.