Warning: Sales and Promotions! How Not to Go Bankrupt. What Danger Might Lie in Discount Website Promotions
Business and online-business
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Representatives of various group purchasing websites call us all the time. They try to talk us into placing a 50%-off discount with them. They promise that this will become free advertising, that we will attract new clients and make a ton of money… Hundreds of small and medium size businesses have been taken in by these promises and have had to put up with losing both money and reputation. Which of these promises are true?

Promise 1

“You will get free advertising and greater brand recognition.”

Actually:

1. Because of the promotion your regular clients will pay you half as much money – many of them get the discount website’s mailings. Do you want your loyal clients to think that they regularly overpay you? After all, you are offering such great discounts! Many cafés and beauty shops have come up against this situation. Clients who used to pay full price, now buy a dozen coupons at half-price. This is pure loss! Fitness centers have similar losses. A client who paid the full price a year ago will now happily renew membership at a discount price.

2. New clients will know you as a cheap company whose products and services cost as much as they paid with a coupon. You will lose reputation. The clients will begin to perceive you as a cheap vendor who is really not doing too well. Discount websites sell “freebies”; they do not promote your brand. The only distinguishing characteristic of promotions on these websites is their absolutely incredible low price! Are you sure you want that to distinguish you from your competitors? Florists often make this mistake by selling regular roses with a coupon, practically at no profit. Naturally, the customer will have no reason to buy flowers again at this particular store without a discount. Similarly with beauty salons – if a haircut had cost a certain price with a coupon, the customer will not be happy to pay a much larger price for exactly the same cut next time.

3. When you add up profits lost and all indirect cost, the loss on a promotion is likely to end up higher than the cost of a good advertising campaign. Many small businesses went bankrupt or had financial difficulties precisely because they did not take into account indirect costs of a promotion. As a result, after serving clients at a loss for three months, the business only stays afloat by injecting the personal funds of the owner. You will ruin your business if you sell below cost. A number of beauty salons had just this problem when for several months after a promotion the stylists had to serve hundreds of people with coupons with no opportunity to work at regular prices. Similarly, a pastry shop was forced to operate at a loss with an unexpectedly large number of clients who bought discount coupons, losing money on every hand-made pastry order.

4. It is a rare business that can handle a customer flow that has increased significantly for just a few days without losses, blunders and complaints. Your employees will not be happy with the larger amount of work, especially when employees work for a percentage of revenue as in a beauty shop, for example. If instead of the regular steady work, the employees have to “sweat on a production line” for peanuts, it negatively impacts both the quality of service and your employees’ morale. Quite often both new clients and employees, who have to deal with them, are unhappy with the promotion. Thus, many small restaurants got dozens of negative reviews on the Internet after a promotion because of slow service and long wait. They did not like the food either – the kitchen could not keep up with the flow. Similarly, medical centers and hairdressers get negative reviews – long lines, impossible to get an appointment for a convenient time, tired and annoyed employees – no one likes it.

5. You need to advertise to your target audience, people with coupons are only looking for freebies. They will not want to pay the full price once the promotion is over and will not come again. This type of advertising is ineffective and often works as anti-advertisement. Do your customers really choose a vendor by price only? Why would you need an audience that is not your target and cannot afford you?

Promise 2

“New clients will buy from you at regular prices afterwards. You will significantly expand your market share with the promotion.”

Actually:

1. You will not be able to convince the clients that you worked at a loss. They will go to your competitors with the next coupon. Discount websites have raised a generation of free-riders, who use the coupon to shop once and then look for another promotion. These people usually subscribe to all offers in the area. An attempt to estimate how many people have actually bought the service at full price usually comes up with 5%. A training company might retain 2 students out of 50 free-riders, even though the rate of return of students who have paid the full price is 30-40%. Similarly, not too many people will stay with your stylist or beautician instead of saving again by going to another beauty shop. You need regular customers – not a one-time surge at a loss.

2. Clients will most likely be unhappy with your service once they pay the full price. After all, they got the same thing having paid two or three times less. Now they are better off looking for another “good deal.” These clients “try out” all services but never pay the full price. Russian travel agencies encountered this problem when they lost money on cheap tours that were supposed to bring them loyal clients. In the end, they had to deal with complaints by disappointed tourists.

3. Because of the “production line” that breaks up the usual work routine, you will have many complaints about the services received during a promotion. Most likely, you will lose some of your old customers. New clients might write negative reviews about you online – they have no way of knowing that your employees usually work much better! Most reviews after a promotion are negative precisely because the flow of customers increased unexpectedly for the employees. Unless you have superb business processes, there will be a lot of complaints and negative online reviews. Your regular customers might even disappear after such a promotion, after all – the poor service will apply to them as well.

4. A person who is used to buying a service at a full price is probably your long-term faithful customer. What kind of loyalty can you expect from someone who is willing to receive daily spam from discount websites in search of cheap offers? The manager of the Charismatic Orator Training Center, for example, called to invite people who attended a free workshop with a coupon for further training. The standard reaction turned out to be, “We really liked it. If you have any other free events we’ll be sure to come. No, we do not want it if we have to pay for it!”

5. If you sell services at prices that are above average, after a cheap promotion you will not be perceived as a high quality, high-end service. Your target audience does not look for the cheapest thing. Many people do not choose the cheapest hair salon because they are looking for an elite salon and a feeling that they are privileged. You will simply alienate your clients with an injudicious offer.

It is not quite that bad, of course. A number of businesses managed to come up with ways to use the opportunities provided by discount websites for the good of the company instead of applying the usual lack of foresight and marketing ignorance of the run-of-the-mill promotion.

Why You Might Need a “Crazy Discount” Promotion. How to Have One and Avoid Financial and Reputational Losses

• If you have just opened, you need to provide your employees with something to do at the beginning, as well as get testimonials from your first clients.

Think of an introductory service that is inexpensive to you. Your objective is simply to attract customers. Set a maximum discount on it and train your employees to sell your primary services. Work on your “skits” with your employees. Prepare the right promotional materials to distribute to the clients. Attract the customers with the promotion and sell them your primary product or service. This is what the HealthyJoy beauty salon chain does, for example. There is a promotion on discount websites whenever a new one opens and the stylists are busy full time for the next couple of months. A movie theater filled its seats for the first two weeks after opening by using discount website advertising. Last year, new rides at an amusement park in Minsk were promoted on a discount website, but the half-price coupons were only valid during the day on week-days when there are not that many people in the first place.

• The time right after Christmas is often off-season for educational businesses or beauty salons.

There are hardly any clients at this time and it is clear that they will not come. Get yourself work using a promotion. Put some effort into a plausible explanation of a discount using the next holiday as an excuse. Try to offer clients a new service that has not been built up yet for the duration of the promotion. Alternatively, you can offer a service that is not popular among your regular clients anyway; one on which you do not make much. You do not have to use discount websites to give your clients a gift like that, your regular advertising channels should work just as well. The Charismatic Orator Training Center, for example, used the Christmas price (50% off) for the “Art of Elocution” training in the second week of January to have an all-time high number of attendees, while their competitors could not find even a dozen of those who would want to attend their training.

• Get a full load if some of the tables in a café are empty or it is down-time for the stylists in the beauty salon.

Think of a new menu or a price list of new services or purchase new products before beginning the promotion. Set your regular or somewhat higher prices and give a large discount for new services only. Offer for promotion those deals that your regular clients do not buy at the full price. Bring two menus or price lists for new customers – the regular one and the promotional. Café Latte has recently had a promotion based on this model. We only found out when we got to the café that the additional menu is a separate sheet of paper that you get in exchange for a coupon. The promotion had no bearing on the rest of the menu. The café’s regular clients did not even have a notion that there is a promotion with discounts. Using a discount website Café Latte managed to attract clients who ordered cheap salads and full-priced drinks or entrees from the main menu. Unfortunately, the café management did make a mistake and the promotional dishes were not too good. It is unlikely that they managed to retain new clients – after all, the regular menu was twice as expensive and twice as good. On the other hand – they did not lose money on the promotion. This model works very well for medical centers. Cleaning your teeth, for example, is sold at half-price and takes less than an hour, while all additional services are full price.

• Sell out an old collection or warehouse leftovers.

Clothing stores often have sales before new stock comes in. Why not use the opportunities offered by discount websites and attract new customers with coupons before prices go down at the store? Just make sure to limit the time of the coupon by a date before your regular sale begins.

• Advertise your new product or new service that is not on the market.

You can sell promotional samples at a significant discount and get not only regular advertising but word-of-mouth from happy customers as well. Of course, you should only do this if you are planning to distribute free samples to promote the product. Training Centers often “break in” their new programs that way. The client who paid 10-20% of the regular price is likely to forgive all the “snags” because the expectations are not overly high.

How Should a Business Work To Not Only Attract Clients With a Promotion but Make Money Too?

• Master two- or multi-step sales to new clients.

It is not worth it to sell something below cost to a one-time client. Take a leaf out of the hypermarkets’ book: by attracting clients with cheap promotions they sell a lot of product at regular prices. Your objective is to simply attract the client with a promotion and make them a regular customer by selling them the rest of your services at regular prices.

• Associate the promotion with any holiday, a professional one, for example, so it is clear to the clients that the promotional offer is a one-time deal.

Make sure to mention your reason for the discount in your advertising, otherwise the clients are sure to perceive the promotion some other way. If you phrase the reason right – the client will be motivated to use your offer right away. After all, your business’ birthday only comes round once a year and if they do not get it now, they will have to wait for another discount for a year.

• Do not use your regular products and services that are popular with your clients. Think of a new menu, new service, or a new price list.

Ideally, your regular clients will not even know that someone came in to you with a cheap promotion, while they had to pay the full price. That is why it is best to use either an unpopular or a new service for the promotion. Alternatively, you can use a service that you give regular customers as a bonus for a certain amount spent.

• Train your employees to sell the expensive popular services. Make special promotional materials for new clients.

It often happens that nothing is offered to the clients in addition to the order and even no advertising is handed to them. This is a common mistake, yet your promotion becomes meaningless.

That is why you need to train your personnel to use so-called “skits” – phrases that sell your popular products and services. Write a scenario for offering additional products and services and train your employees on how to sell the ones that best match what is already ordered by the client. It would also be very nice if the clients take with them a useful educational brochure with your advertisement. In order for this brochure not to end up in the trash can it should have some important reference materials in it, not simply your advertising.

To advertise a beauty shop, for example, you can include a rejuvenation recipe, tables for selecting the right set of cosmetics or skin and hair care recommendations. A children’s clothing store might have advice on raising children and healthy food recipes; a café – a special take-out menu.

If the useful articles are written by experts who work for you, it significantly raises the level of trust. If clients regularly see your advertisement and the names of your employees when reading the advice, they often decide to contact the person who wrote the article.

It works even better if these educational recommendations and your experts’ advice are in your business mobile application. You can lose a brochure, but your smartphone is always with you, so your ads are viewed much more often. It is also easier to recommend a mobile application with good tips to your friends than to give them a brochure. A mobile application starts at $500, which is cheaper than usual media advertising and it works for years both as advertising and as a loyalty program.

• Collect contact information of new clients and systematically work with the client database after the promotion using low-budget marketing techniques. Give the right offers to customers by mailing and calling.

It is much cheaper and easier to work with people who have paid you at least once, that is became your clients, than to endlessly spend money on new advertising. Make sure to set up a client card – either electronically or in hard copy. It is best to do a monthly mailing of tips, interesting articles and good “hot deals” to your client database.

Wish your clients a happy birthday and invite them to pick up their gift at your store or office. Suggest buying gift certificates as presents for friends and family before such holidays as Christmas, Valentine’s Day, or Mother’s Day. Create a loyalty program that will allow the client to accumulate points in order to get a gift. Remind them that it is time to visit you again.

It is even better to do promotions, send out reminders and give the clients bonuses using your own mobile application. Your client will have your advertising on the screen of his or her smartphone (iPhone or Android) practically every day. This way, when there is a red update number, information about your promotions or news is sure to be read instead of being sent to the Trash or Spam folders as might happen with an e-mail mailing.

If your mobile application not only tells your business hours and allows setting up an appointment, but also has articles with tips and useful recommendations, educational videos or details of various services, offers gifts and bonuses, the loyalty of regular customers grows manifold.

An additional argument for using mobile marketing is the option to “like” inside the application and to share your company promotions on social networks. Your clients’ friends who saw your free advertising posted on their wall will come to you.

 

Summary

1. Be careful with promotions on discount websites: estimate profit lost, do not repeat someone else’s mistakes and think about alternative advertising instead of “promotions for free-riders.”

2. Unfailingly collect your customers’ contact information and work with the client database, maintain “client cards” and send out reminders.

3. Create a loyalty program that allows your regular customers to participate in your promotions and get bonuses.

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Date of publication: 28 January 2018
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