Conventional wisdom says that discounts are a great way to boost your sales.

That’s why my clients are usually surprised when I tell them that offering discounts is a losing strategy.  (Discounting in this discussion means selling at low gross margins as a strategy to have customers.)

Let me ask you a question: what is your goal for your business?  Are you interested in squeezing every penny that you can in the short term, at the expense of the future of your business?  Or is your goal to build a stable, profitable business for the long term?

If you are interested in short term revenue, by all means use discounts.  You will certainly generate a temporary buzz and see a short spike in sales.

But if you are looking to build a profitable business for the long term, discounts are not your friend.  Why?  Because the key to building a reliably profitable business is to differentiate yourself from the competition and provide more value than anyone else in your market.  If you can do that, you do not have to compete on price.  Your customers will be willing to pay a premium for your products or services.  And once you can stop competing based on price, you are essentially bulletproof—competitors can cut their prices as much as they like and it will have very little impact on you.

By offering discounts, you are attracting customers who are making their purchases based on price.  As long as your prices are low, you will have plenty of business—but it will be gone in a heartbeat as soon as a competitor offers a sale.  These customers are not the ones you should be chasing.  You should be targeting the customers who appreciate your products and services and are willing to pay a premium.  These customers are not going to be influenced by temporary discounts.

The choice boils down to this: if you want to attract customers for the short term, offer discounts.  But understand that they are going to leave you sooner than later – off to the next better discount.  On the other hand, if you want to build a solid base of loyal customers, focus your energies on creating value and differentiating your products.