From William T Lasley,
Your Guide to Arts / Crafts Business.
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Discounts on your products can be a good way to increase sales. But a sale can sometimes hurt profits! When is a good time to have a sale? When do you stand firm on your pricing?

When Not to Mark Down Prices

• High-End Shows - At quality shows, you will not want to appear to be a vendor who often offers discounts. Not only does it lower the image of your work, it can hurt the customer's image of the quality of the event.
• Competing with Wholesale Buyers - If you sell your crafts to buyers in the area, you should not put discounts on products they carry. It's bad business to undersell your buyers!
• Prohibited Sales - Many promoters of craft events and consignment shops forbid holding sales. Be sure to find out the particular rules regarding discounts at shows you are attending and in consignment stores where your crafts are displayed.
• Cost of Materials - Be aware of your expenses for raw materials used in the production of your products. If your "bargain" price doesn't cover the cost of materials, your business will lose money at the expense of increasing sales.

When to Discount Prices

• Repeat Buyers - We all love those return customers who buy from us again and again. A special offer for repeat buyers is a great way to reward their loyalty. Many times, a consumer will even purchase more products simply to take advantage of the bargain.
• Old Inventory - If you have old, out-dated products you would like to get rid of, a sale can be a great way to quickly clear them.
• End of Season - When your best selling season ends, you may want to discount your crafts to help make room for new items.
• Raise Capital Quickly - If you have an emergency expense that needs to be recovered quickly, a sale might help. Be sure to only do this as a last resort. Remember, you are hurting profits by not covering cost of materials and labor expenses.
• Damaged Items - Damaged products are well-suited to discounting. Of course, if something is destroyed beyond use, you should just throw it away; but, many buyers love the idea of a discount on "scratch and dent" products.
• Going Out-of-Business - If you are closing your business, a sale is a perfect way to liquidate any remaining inventory. You might even consider attending a flea market or similar event to help speed things up.