Discounting Yourself Out of Business

As a consumer it appears that we have never had it so good as businesses aggressively try to lure us into post – GFC purchases by offering substantial discounts. But what is great for the buyer is not always great for the seller, just look at DFO’s (Direct Factory Outlet) 8 factory outlets and the likes of collapsed footwear retailer ShooBiz (43 stores).

Interestingly it was only in February of this year that Gerry Harvey of Harvey Norman spoke out claiming that retailers had forgotten how to be retailers and that they had developed a price slashing mentality. This dependence on price slashing to generate sales is clearly damaging margins and sending many businesses to the brink.

There are two main reasons for discounting, to clear inventory or as part of a sales strategy. Both have merit and are key function of running a business. The problem arises when there is excessive discounting over sustained periods of time and it is not part of a planned sales strategy.

Too often there is a follow the leader mentality with copycat sales being reactive to other businesses discounting strategy. This re-active ‘knee-jerk’ reaction becomes an issue if you haven’t calculated your margin and considered if this strategy is viable or not.

Here are 10 alternatives to help reduce the need for re-active discounting:

  1. Better promotion of your brand. Many customers will gladly pay a little more for quality even if it’s only perceived.
  2. Talk to your customers on a regular basis via multiple channels. This keeps you front of mind at purchase time and generates loyalty.
  3. Communicate the value in your offering. By offering a product that exactly answers the customer’s problem you create value.
  4. Be innovative about how you interact with your customers. Be a thought leader not a sheep.
  5. Focus on exceptional customer service! Are your staff the best trained? Most knowledgeable? Most friendly? Best closers? Know how to answer objections?
  6. Consider whether loyalty programs are appropriate to your strategy.
  7. Create competitive advantages through the sales process, distribution and technology. You don’t always need to compete on price!
  8. Create a superior customer experience than your competitors. What environmental changes or add-ons will go beyond the customer’s expectations.
  9. When discounting current or promotional products look to your suppliers for advertising money & discounted cost prices to maintain margin.
  1. Consider how to motivate your staff via incentives, benefits, culture etc to get the best possible performance from them.

 

Richard Kemp – Watts Price Accountants
E: richardk@wattsprice.com.au

The advice provided on this Article is general advice only. It has been prepared without taking into account your objectives, financial situation or needs.