Alexis Larinda Carney

Aug 14, 20223 min

Discounts

Updated: Aug 23, 2022

Purpose of Discounts

There are many purposes for discounting, including to increase short-term sales, to move out-of-date stock, to reward valuable customers, to encourage distribution channel members to perform a function, or to otherwise reward behaviors that benefit the discount issuer.

  • Increased sales.

  • Boost brand awareness.

  • Free up storage space.

  • Boost your brand reputation.

  • Build customer loyalty.

  • Meet sales objectives.

  • It may give you a competitive edge on pricing

  • Extra advantage of doing business

Why Sometimes You Shouldn’t Discount

When a company offers a discount to their customers, they're taking a big risk of devaluing their services. Customers can get the impression that the services being offered aren't worth paying full price for. It also sets a precedent in the customer's mind that your pricing isn't firm.

U.S. Legal Issues of Discounts

When you propose to enter into a contract with another person, you have made an offer. Upon acceptance of the offer, the parties enter a legally binding contract.

By legal definition a contract is an agreement between private parties creating mutual obligations enforceable by law. The basic elements required for the agreement to be a legally enforceable contract are: mutual assent, expressed by a valid offer and acceptance; adequate consideration; capacity; and legality.

First and foremost, valid offers are either implied or expressed. An express offer is one made either verbally or in writing. Implied offers are those made through the conduct of one person toward another.

The second element of a valid offer is that the purpose of the offer is to create a legal relationship. If you make an offer and acceptance of that offer does not legally obligate you to another person, it is not a legally valid offer.

In the law of contracts, acceptance refers to the promise or act of a buyer who indicated their willingness to be bound by the terms and conditions stipulated in a seller's offer. Acceptance is a necessary element of a legally binding contract.

If a discount is offered by a company, the company is legally obligated to provide that offer to anyone who accepts it. Otherwise they could be liable for false advertisement. Therefore, any representative of a company needs to make sure they have the authority to offer any discounts.

False advertising is defined as the act of publishing, transmitting, or otherwise publicly circulating an advertisement containing a false, misleading, or deceptive statement, made intentionally or recklessly to promote the sale of property, goods, or services to the public.

How to Minimize Risks of Discounting

  • Be very specific about the terms of the contract

    • What is the offering?

      • Be very specific about the offering to be discounted so that similar services not to be discounted cannot be legally qualified

    • How much is being discounted?

      • The end price you offer must be honored

    • How long will the discount last?

      • If you do not set an end date, the discount applies in perpetuity

      • Limited time offers are not only a way for a company to create a sense of urgency to buy a product, but also covers their ass for any liability of having to honor that offer after the time ends

Ways to Avoid Discounting Upfront

The goal of these strategies is to essentially get the same price up front for the offer, but find ways to upsell the offerings to show the benefits of following through

  • Ask Customers to Help with a Project or Sign Up for a Contact List in Exchange for (a) Discount(s)

  • Increase Value to Customer Instead of Discounting if Goal is Same Bottom Line

  • Bundle Up

  • Buy More, Get More

  • Credit for Next Purchase

  • Rebates

    • A rebate is a form of buying discount and is an amount paid by way of reduction, return, or refund that is paid retrospectively.

    • Usually based on specific conditions

    • Company gets use of those funds for a specific time before the rebate is due back under certain conditions

Why Deaf Child Doesn’t Generally Discount

  • Discounted customers are less likely to pay, so they won’t stay

    • Not offering discounts reduces turnover rates

  • Discounting undervalues offerings both externally and internally

    • Customers don’t think it’s worth it

    • Sales team gets more caught up on short term profits than long term sustainability if they are just trying to close

When Should You Discount?

  1. Be discrete so that those paying full price won’t feel undervalued

  2. Segment discounts by excluding people who are willing to pay full price

  3. Limit discounts in scope and time because the full price is worth it, and people who aren’t willing to buy after certain obstacles have been overcome just won’t anyway

  4. Vary offers so that people don’t expect discounts that they wait for instead of paying full price

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