Mar 07 2017 . 3 min read
DO DISCOUNTS DESTROY YOUR BUSINESS?
DO DISCOUNTS DESTROY YOUR BUSINESS?
Mark S.A. Smith
Must you offer discounts to get customers to buy? Many retailers believe that if they don’t offer a better price, the customer will choose their competitor. That’s not necessarily true. The problem with discounts is customers come to expect them and they usually want an even better deal the next time. It becomes a price race to the bottom.
Valid reasons for discounting include stealing a deal away from a competitor, increasing the value of that customer’s relationship with you, or increasing sales volume to generate needed cash flow or to take advantage of production efficiencies. Read on to learn how you can increase sales while decreasing discounts.
When everybody sells the same branded product, customers tend to comparison shop because in the absence of product differentiation, price becomes the differentiator. When everybody knows the price of the product, the price must be right.
When selling a widely-available brand, choose to use “smart pricing” where you consistently sell that product at a competitive price. Customers assume that the rest of your prices are equally competitive. Upsell the customer to a better or higher-value product and sell other products they don’t know at higher margins.
Sweeten the Deal
Hold your price firm and add value. What can you throw in that sweetens the deal, adds value, and helps you move overstock?
A good deal sweetener can be something your customer hasn’t bought before, such as a new strain, a new accessory, or a new edible. You get the double benefit of today’s sale plus setting up the next purchase. Cosmetic companies constantly do this, never discounting, instead offering samples of what the customer should buy next.
Throw in overstock. You get to move old inventory and keep the full margin on the leading product. Don’t toss in anything scarce, costs you lots to deliver, or is of high value to your customer. There’s no reason to discount things people want or that are in high demand.
Make sure that your customer knows the full price of what you’re adding to sweeten the deal so that they understand the value they’re getting.
Offer a better deal on a bundle then on individual items. What do they need for a complete experience? Bundle it in. Bundles take the focus off individual item prices, increase the sale size, and upgrade the customer’s received value, so everyone wins.
This works well when you can bundle in a higher-margin product, such as custom smoking accessories, and increase the overall bundle profit.
Credit for Next Purchase
Offer customers a credit on their next purchase. This method holds the price today and offers a reward when they return.
You can also use this to sell more, with a sliding credit scale based on purchase volume. “When you buy today, you’ll earn a $5 credit you can use anytime other than today. And if you buy $200 today, that increases to a $20 credit.”
The customer feels like they’re getting a deal without impacting the perceived price and associated value, and impacting your margin. Ultimately you only forgo the
profit on the credit and keep all of your margin today. You can consider this your marketing investment for them to return, soon.
Put an expiration date on the credit so that your customer will purchase sooner than later, adding to your short-term sales volume.
Mark S. A. Smith helps business executives create disruptive and comprehensive business strategies and marketing plans. He publishes weekly business articles on LinkedIn (http://MarksOnLinkedIn.com) and just launched SellingDisruptionShow.com, a weekly podcast. Contact him at Mark.Smith@BijaCo.com