Discounts and promotions seem like great ways to boost sales. But how much do you lose by offering them.

Face it, sometimes you just want money.

You may be in business out of your love for SEO. You use what you know to help clients sell more. But when your cash register stops ringing, all this passion goes through the window.

And, there’s nothing wrong with that. After all, you have bills to pay (not to mention profit you’d like to make). Your business should at least cover that.

But the problem is, when slow times come, it gets really hard to keep moving ahead, and trying to win new clients. Instead, your marketing sixth sense kicks in and you start looking at quick ways to generate income – promotions and quick sale incentives like discounts or bundles in the hope that they will send work your way.

I ‘ve seen this done all the time across the industry. Discounts, coupons for one-off service, freebies, bundles, tiered pricing, loyalty programs, rewards and referral incentives and others.

But they fail. Why? Because in spite of looking so glamorous, they don’t work. Or else, they do – by damaging your business.

Here’s how.

Discounts / Coupons

Offering discounts (or their sibling, coupons) seems like an ideal way to increase sales. A one-time offer must attract more customers to your business (ones which you then convert at a higher rate when they purchase again), right?

Unfortunately not.

First problem with discounts is that they attract a wrong demographic of spending. Instead of spenders, people who have a problem and are willing to pay money to solve it, they attract savers, clients who focus one thing only, looking for deals.

These people will never become loyal or even repeat customers. At a very first notion that if there could be someone cheaper, they will switch.

Another problem, discounts cost you money. By selling your services at a lower rate, you cut into your margin. Your costs and expenses stay the same so you end up earning less from people who most likely will never buy from you at your normal rate anyway.

Lastly, offering discounts sends a wrong branding message that you are willing to discount your pricing. If you do that often enough, that’s how customers will start perceiving your brand.

Freebies

Similarly, you can be tempted to lure new customers in by offering something for free. Now, let’s distinguish here between two types of freebies. One is a free, no obligation consultation you might be offering to attract new prospects. This type of a freebie carries little risk and has long been perceived as a norm in the industry. Even though these types of freebies still cost you money, usually you deliver them at a low cost and use them to impose fear into a prospect to buy from you.

The other is a freebie requested by someone, usually in return for promotion or other promises. It can be tempting to do so. After all, you technically have no production costs. You are not busy so why not. The trouble with this approach is that:

• delivering free service costs you money – you still have to cover your bills
• promise associated with it is usually not as lucrative as it sounds (if there is anything on the other end at all)
• it will consume more of your time than you initially want to dedicate to it – what you consider as a cheap freebie, your “client” will see as a full blown service. And she will expect that.

Bundles

There are two ways to purchase a service: a la carte or through a bundle. The former is a service you buy on its own, say a link building plan or a website audit. The latter is a collection of services, which cost less than if you’d purchase what’s included separately.

The goal for bundling services is simple – create customer loyalty, drive revenues and improve brand image.

The trouble is that our brains don’t respond well to this kind of promotion. In fact, a lot of the time bundles have a negative effect on the perceived value of your offering. Our brains use what’s known as categorical reasoning when classifying products or services – we naturally classify them as expensive or inexpensive. This categorisation helps us to judge what we buy, but by default we associate the less expensive products value to the entire purchase. Therefore, if you bundle expensive service with less expensive one, your customers will classify the bundle as less expensive (and as resulted – less valuable).

This thinking however does not happen when the same services are sold separately. An expensive one even when mentioned alone with the less expensive one will remain being seen as of high value.

Loyalty Programs

Loyalty programs have originally been designed to do one thing  – change customer behaviour. Companies use them to get customers to buy more of what they sell and less of competitors. And, on the outset, they seem to work. Customer redeems their purchases for points, free coffee or other rewards. The trouble is, in spite of that perception, there is little to back up the claim that this model actually delivers what it was designed to.

But, it does cost you money.

If your customers are loyal to you, you don’t need to spend anything extra to make them loyal. If you run loyalty programs, however, you do need to constantly raise your prices not to make loss when customers redeem their rewards.

Rewards & Incentives

Any reward is designed for one thing – to inspire higher performance. Be it from staff or customers, you reward good work. That’s what many companies try to achieve by offering referral rewards to their customers. Refer a new business to them and you might get a one-time payment or % of a sale.

It has been long, however, proved that such incentives can backfire. In 1970’s Richard Titmuss, a British social researcher discovered that paying people to give blood resulted in reducing the supply. Why? Because the offer attacked their altruistic beliefs.

Rewards and incentives might suggest that that person’s motives are governed by nothing else but the desire to earn a free buck. And this achieves nothing else but reduces their interest in doing what you want to reward them for.

One way to turn the situation around though is by doing something good on their behalf. When blood donors were told that instead of payment, the money will be donated to charity, the numbers went up again.

If Promotions Don’t Work, What Can You Do in Slow Times?

As cruel as it might sound, if you start looking for work when you’re no longer busy, you’re already too late.

You will never be able to avoid slow times since they are part and parcel of a business. You won’t be able to end them quickly either. But you can reduce them by continuously looking for new clients. Keep on selling and promoting your brand. No slow times last forever.

Slow times shouldn’t take the blame for businesses that fail. Wrong pricing strategies, mismanagement, costly promotions and poor customer service attribute more to business failures than slow times. With a proper sales plan in place, you should be able to reduce how often slow times happen. They won’t go away completely though.