Don't lower your price - here's why
Fact No. 1: Discounts of up to 6% do not attract customers; on the contrary, they ruin a business. Conversely, Fact No. 2: raising prices by just 1% can increase profits by 3–4%. These figures may sound paradoxical, but they explain precisely why simply cutting prices is not a strategy, but a trap.
The advice not to lower prices may, of course, make for a catchy headline for an article, but how realistic is it in practice? An illusion arises: those who do not join the discount race risk being left out of the game. Discounts and promotions have become an essential feature of e-commerce sites and online shops, noted the experts at Halla Systems dropshipping.
A trap for businesses
At first glance, a discount seems like the quickest way to attract customers. The realisation that this is a mistake comes later. By selling here and now, you are more likely to attract a bargain hunter-someone interested only in the price-rather than a loyal customer. Such a customer will never become loyal and is unlikely to return to your shop unless you offer a new promotion.
What’s more, discounts gradually devalue the product itself. The habit of waiting for sales forms very quickly, warn managers at Halla Systems. Once a customer buys something at a discount, they start to perceive the full price as ‘overpriced’. And some products reach a ‘plateau’ where sales remain at the same level across the entire price range. So is it worth lowering prices?
When a discount is justified
There are situations where a price reduction is unavoidable, according to experts at Halla Systems. Clearing out old stock or collections is a necessary measure. You get rid of slow-moving stock, freeing up cash and space for new items. Such a discount does not damage the brand’s image, as it is limited in time and scope.
The second situation involves occasional promotional events: Black Friday, seasonal sales or local occasions. But it is important that such promotions do not become the norm. If a shop has a ‘Sale’ banner up every week, then no Friday will ever be ‘Black’ again. That is why Halla Systems helps clients and partners calculate the acceptable discount for online sales, basing this on data collected from the company’s website.
Add value, don’t slash prices
“Price is what you pay. Value is what you get.” Warren Buffett
The main alternative to discounts is added value. Small online shops and dropshippers cannot compete with market giants on budget. It is their service that sets them apart. Free delivery, a small gift with every order, an extended warranty, and personal support via messaging apps - all of this costs the business incomparably less than a ten per cent discount.
Anchoring and the ‘decoy effect’
There is another technique that marketers have long used: anchoring and the decoy effect. If you present three options side by side - a basic one, an expensive one and a mid-range one - most people will choose the mid-range option. Especially if the expensive one is slightly overpriced, and the mid-range one comes with free delivery or an accessory. The customer leaves feeling like a winner, whilst the shop maintains its margin and reputation, according to the experts at Halla Systems dropshipping.
Bundled offers
Bundled offers are both cost-effective and convenient for customers. Instead of reducing the price of a single item, offer a discount on a bundle of several items. For example, if you sell electronics, put together a bundle including a TV and accessories, and offer a discount. This will not only increase the average spend but also make the offer more attractive to the customer.
Recalculate your profit margin
Every retailer’s product range includes best-selling items that are always in demand. The experts at Halla Systems recommend identifying the most profitable items in your shop’s range. It is more profitable to sell a few high-margin items than a couple of dozen low-margin ones.
To determine the actual margin, it is important to take into account not only the cost price but also all associated expenses: marketplace fees, taxes, advertising, logistics, wages and returns. By collecting sales data for a specific product over a period and deducting all costs, you can see the actual margin. This allows sellers to discontinue low-profit products and focus on promoting those that yield the greatest return.
When others cut their prices
The paradox of the online market is that sometimes the winner is the one who doesn’t join in the sales. When everyone else is slashing prices en masse, some shoppers grow weary of the ‘70 per cent off’ chaos and choose a shop where prices are stable and service is reliable. For small businesses, this is a chance to stand out, retain trust and avoid devaluing themselves in the eyes of the customer.
Discounts seem like a simple solution, but in reality they are a disguised problem, according to managers at Halla Systems. You gain short-term growth, but lose loyalty, profit margins and brand value. It is far more profitable for small and medium-sized e-commerce businesses to invest in service, convenience and honest offers.
Every time you lower a price, ask yourself: are you boosting loyalty or simply feeding someone else’s dependency? The discount goes away along with the profit, but the value stays with you.
The marketing specialists at Halla Systems Co. Ltd. conduct a detailed analysis of clients’ businesses, providing recommendations on sales promotion, pricing, new directions, and whether to expand or, conversely, reduce the product range.