You’ve set your price. Why would you want to apply any discounts to it? Some businesses never give a discount. And others are chronically addicted to doing so. There is a way to use discounts wisely, but like drugs or alcohol, it is critical not to overuse them.
Since the seasons are about to change, we thought it would be timely to discuss a specific kind of discount: the seasonal discount.
Seasonal discounts are used all the time and are a potentially useful tool to help a business manage its uneven revenue patterns throughout the year and ensure inventory turnover.
Seasonal discounts usually have three characteristics:
- They are intended to help boost periods of low demand.
- They are usually date-specific, i.e. they have clear start and end dates.
- The amount of the discount is usually highest on the items of lowest demand.
The most obvious example of seasonal discounts that most consumers observe is in the retail sector. Retailers use seasonal discounts year-round to move inventory that is going out of season. For example, an outdoor equipment supplier that we know sells both snow removal and lawn maintenance equipment; the company discounts last season’s lawnmowers in September and discounts snowblowers in March/April. Buyers who are able to stock up on such purchases off-season can enjoy those discounts, while the store helps to make room for the in-season equipment on the showroom floor.
But seasonal discounts can also apply to service businesses, and this can allow a company to afford to keep valuable skilled labour even when work volumes would normally be very low at certain times of the year. For example, a seismic survey company we know charges full-price labour rates in their busy winter season, when most of the survey work is needed by the oil companies. But they drop prices significantly in warmer months, after “spring break-up”, which is a condition in the north where the ground becomes too soft to bring heavy equipment in to do the work. The lower labour rate in the spring allows them to keep key staff busy and employed during the summer when work is scarce. The owner of the company is exceptionally good at planning out his profitable months to cover off his unprofitable ones, and has been able to keep the best staff in the industry. In contrast, his competitors are forced to lay off staff in the summer months, having to scramble to find new ones every fall. This gives the company a real edge in credibility by retaining long-standing, high-performance staff.
But before you rev up about seasonal discounts, there are a few more things to consider when trying to adjust seasonal sales patterns:
- Could you have boosted marketing in slow seasons? Maybe a little more outreach could have stimulated the sales you needed, instead of dropping the price. If the marketing is active, ask yourself, is there a lack of need or do people simply not know you exist? If it’s the latter, seasonal discounts won’t help you.
- Are there other markets that could have needed your offering? Perhaps looking around the globe and/or trying some online marketing could have opened up sales that weren’t there previously. There may be demand pockets further away of which you’re completely unaware. (Tip: Try using Google Trends to search keywords that affect you; this tool can show you where in the world those keywords are most highly sought. And it’s free!)
- Is the slump actually seasonal? If you are having a bad month or two, look at your previous years’ sales. Is it a really consistent pattern and is it related to the season? If not, it might be a marketing or brand issue, not a pricing issue. (And actually, the same tool suggested, Google Trends, can also show you the seasonal demand patterns for the keywords that affect your business.)
In the examples we described, seasonal discounting makes good business sense. But as I’ve discussed previously in our blog ‘How and When to Discount Your Price’, you must be very careful not to use discounts so often that you train your customers to wait for them, or they will never want to buy at full price. If this becomes a pattern, you will seriously deteriorate your profit margins, inhibiting your ability to expand and grow.
One final caution about discounting, do not show regular prices that are always discounted. In some locales, this is seen as a kind of falsification of pricing. In other words, if your business never sells at its ordinary ticket price – you could be violating the law, and deemed to be duping consumers into thinking they are getting savings on a price that was phony in the first place.
In summary, seasonal discounting can be a legitimate, smart way to adjust pricing throughout the year. If you can avoid reducing price, do it. And if you want to use seasonal discounts, just be sure that you can replenish your profit margins in the higher-demand seasons.