With pandemic restrictions generally a thing of the past, higher interest rates, supply chain issues, and general uncertainty about the economy, it’s a challenge for small businesses and consumers alike to navigate this holiday season.
Given a backlog of inventory from multiple seasons all hitting the marketplace at the same time, some merchants may find themselves with too much product that they don’t know what to do with. Similarly some businesses even find themselves raising prices in response to a general increase in cost of goods and living, so the idea of a holiday sale may be counterintuitive for your small businesses.
Consumer sentiment appears to be a mixed bag. Everyone is eager to resume their past holiday traditions, with holiday shopping already underway for some, a month earlier than when most make the shift to holiday mode following Halloween.
However, many are also feeling their pursestrings tightening as essential costs have simultaneously risen. The question is whether consumers will be splurging on holiday shopping using the money that they have saved the past few years, or if that money will be redirected to cover unexpected rising costs.
Understanding your customer is another important factor in deciding whether to offer a promotion or not, and if so, how much it should be. Luxury brands, for example, are less likely to offer sales because their customers are simply used to paying higher prices. It could also be a matter of testing what type of sale strategy works best for your customers: a percentage discount or an amount discount, factoring in what also makes economic sense for your bottom line.
Pros of Offering a Holiday Sale:
Keep up with consumer expectations. Some consumers expect all brands to offer a sale at this time of year, and may not be willing to make purchases without any added value. Accordingly, offering a seasonal sale is about “keeping up” with the big box stores.
Provide a sudden spike to your sales. Although it may be in the short-term, for some this additional boost could help balance your books for the end of the year.
Clear out inventory. Whether it’s excess inventory or previous season’s merchandise, selling things off can make space for other items for the following seasons. This may be particularly attractive to merchants who have found themselves with a surplus of goods after having purchased them in larger quantities as a result of supply chain delays.
It can help you extend your reach. When it comes to holiday shopping, some people have a specific cap on the amount they’re willing to spend on a particular gift or purchase which may have otherwise excluded your offering from consideration. While they may not be as keen on the full price after the sale, by that point you may have already secured a loyal customer.
Cons of Offering a Holiday Sale:
Decreased profit margin on each item sold. This is the biggest negative effect of sales for merchants because each item will contribute less revenue.
It undercuts the perceived value of your product. While sales are great in the short term, there can be some unexpected consequences beyond the sale period. Customers may be less inclined to purchase an item at full price having previously seen it on sale, questioning its value.
It can negatively impact your future sales cycle. If customers are waiting and expecting a future sale, this could create a lull in the period before the holiday season.
It contributes to overconsumption. This is all about brand ethics and what your company stands for. Sales inevitably create a certain amount of frenzy because they aren’t forever. If your product or brand is about conscious purchasing, this could be a deterrent to simply hopping on the holiday sale-bandwagon just because everyone else is doing it.
Alternative Solutions
Look to Provide Additional Value in Other Ways.
Added value does not exclusively have to mean monetary savings. Some other ideas to consider are flexibility for in-store pickup which allows customers to still complete their shopping online but not have to pay for shipping to their homes and offering an extended return window during and following the holiday season.
Set Specific Terms to Your Discounts or Promotions
Rather than offering a carte blanche sale across everything that you sell, consider a promotion on a single item, a particular category, or a select few items. Another strategy is to apply promotions to larger or multiple purchases. This could be in the form of buy one, get one X% off, spending a certain amount and receiving free shipping, or creating bundles that combine different items for a discount.
Keep an Eye on Your Competition
The reality is that small businesses will never be able to fully compete with big box stores or mega online marketplaces simply because of scale and resources. But that doesn’t mean you should operate with blinders on. Keep tabs on what your direct and/or local competitors are doing. If you notice that they are running some sort of promotion, this gives you another factor to consider when making that decision for your own small business.
Consider a Loyalty Program
Repeat business is the best business. So why not reward customers for their loyalty by encouraging them to make additional purchases. Whether you offer a product or service, you can offer them a discount or freebie after a certain number of transactions.
Final Thoughts
As a solopreneur or small operation, some merchants feel as though their pricing is already fair without a discount. Take a good hard look at your balance sheet. If you continue to sell as is, how will your year end? In other words, do you really need to offer a holiday sale to be profitable if you simply maintain the status quo? Outside pressure can leave many businesses closely examining the pros and cons of offering a sale in order to make a decision.
The reality is that there is no universal “right choice”. Each business is in a unique position in terms of their offerings, their profits, the seasonality of their business, the amount of inventory they have, and the type of customers they serve, in order to ultimately decide if they should or should not offer a holiday sale.