With Black Friday and Cyber Monday on the horizon, lots of small-business owners rightfully have the holiday shopping season on the brain. The big guys (Target, Walmart, Amazon) have been planning their holiday deals for months--they need to. But what about everyone else?
The pressure to have a huge discount is looming because your brain is wired to herd. The good news is, not all businesses should offer a discount this time of year, and here are a few guidelines to help you determine if you are one of them.
Why do you want to offer a discount?
If the answer is "because everyone else is" or "because our competitors do" or even "because we always do," that isn't a good enough reason. Discounts can be incredibly damaging to a business when applied improperly, and getting caught up in a price war may not be worth it for your business.
Your brain's desire to herd is also why you feel compelled to send client gifts this time of year (which is a bad strategy for most businesses).
When our brains herd, we assume others have done the due diligence and determined it is a sound strategy or investment. This is how stock bubbles form and people invest more than 10 times their annual salary for a single tulip bulb.
This combines with the availability heuristic on Black Friday, because it seems like all you see are people offering deals and stories of how it brings all the businesses into the black when they may have otherwise ended in the red. Unfortunately, in the same way every person posting a video to YouTube won't become the next Justin Bieber, the stories we see most often are not necessarily a true account of what happens in most cases.
If you are not one of the big retailers, you should not copy their discounting strategy.
Can you afford the discount?
In fact, you should not copy anyone's discount strategy. Instead, it is best to do your own due diligence and look at the numbers to see what you can afford.
- If you have a product business and a lot of inventory you need to clear out to make room for the next season's product, a year-end deal is probably a good idea.
- If you have a product business with an evergreen product that has low margins already, a year-end deal is probably a bad idea. Selling all your inventory at a price you can't actually afford is almost never a good strategy.
- If you have a service business, you almost definitely do not need to offer a big year-end discount. It doesn't mean it isn't a good strategy, but refraining can relieve some of the pressure because this isn't the type of thing most people are looking for at this time of year, which leads to the last consideration:
Is this the time people are looking to save on what you're selling?
Timeliness of a discount or deal is key to its success--both in the type of business and the specific product or service being offered. Behavioral economics is all about getting into the mindset of your customer.
- What are they thinking about during this time?
- What is keeping them up at night?
- What problem are they trying to solve?
Perhaps there is a specific niche that would benefit from your offering, while it is not on the radar for the bulk of consumers. And if people are looking for whatever you are offering and it will solve the problem keeping them up at night, do they even need a discount on it? This might be a good time instead to target specific offers to a small group instead of a blanket deal that will cost you money in the long run.
Of course, it is important to consider your competition and industry as you look at all these factors. The key takeaway is to actually look at your specific situation--your numbers, your strategy, your customers--to see if a deal is a fit for your business right now. And do know that sometimes not offering a discount is the best deal (even if everyone else is doing it).