It seems discounts are everywhere on the high streets as competition continues full throttle.
Remember some of the classic images from Black Friday? (I especially loved the one of the woman who was SO determined to have that 40” TV from an Asda store in Wembley on that now infamous date. Priceless!). http://www.huffingtonpost.co.uk/2014/11/28/black-friday-woman-fights-everyone-wembley-asda-flatscreen-tv_n_6235354.html
I also enjoy reading the current headlines and stories on the news about last-minute Christmas shopping and the peak times and dates for shoppers. There was even a story in the Independent on Tips and Tricks to sales shopping and retailers’ guides to bagging a bargain http://www.independent.co.uk/life-style/fashion/shopping-smart-at-the-sales-9938851.html
But how can discounting work well in business as it can be expensive, potentially even killing companies. Few business leader or entrepreneurs realise that the biggest cost in their business can be something that doesn’t even show up in their accounts – the cost of giving discounts. When you’re doing less business than you’d like, or failing to hit targets, it’s all too easy to panic and offer discounts just to get sales. But do you need to?
Follow these 6 Top Tips to look at discounting in business:-
1. A hidden cost
They don’t appear in your accounts – yet by offering discounts you jeopardise business success.
Discounts are a significant business cost in just the same way as the rent, rates, payroll and other overheads which DO show up in your accounts. Companies which discount when they shouldn’t are usually the first to die. Don’t be one of them.
– Do you give away unnecessary discounts?
– What is your actual cost of discounting?
– How much could profits grow if you started controlling discounts right now?
2. Impact of discounts
Many businesses throw around % discounts with little thought of the impact.
If you have 20% gross margin now. And you’re tempted to discount by 10% you’ll need to double your sales just to stand still.
If you have 30% margin and you discount by 10% you’ll need to increase your sales by 50%.
If you discount by 20% you’ll need to TRIPLE your sales.
3. Not just price
If customers come for your price, they’ll leave for someone else’s! There are some times when discounts are appropriate and can make a dramatic difference to results.
But discounts are also frequently offered when there’s no need for them at all.
– When do YOU offer discounts?
– Why?
4. Knock-on effects
By offering discounts for no reason, you only ‘make a rod for your own back.’
Unnecessary discounts are wasteful, indiscriminate and unproductive because they reward ALL customers, even those who end up buying less than before.
Once a discount has been given, customers often expect to continue getting it for years. They’ll then fight to presence their current discount rates and for many of them, it will become a matter of pride and principle.
5. Don’t de-value
It’s very difficult to build a satisfying business with ‘discount customers’.
They don’t value you or your products and services, and will continually get you to charge less. They’re communicating that your product or service, is not worth to them what it is to you.
You really don’t need customers like that. Yet many businesses happily take them on every day. Then they wonder why their work and income aren’t more satisfying!
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