Why do businesses discount and throw money away? customers know your discount cycle and only buy when it is valuable time
Why discounts are bad for business
Businesses set new price expectations by having constant sales.
But maybe they are starting to wake up to the strategy and take a whole new direction.
I buy Petfood every month, my spend is about a hundred dollars and I have about six local outlets and online services to choose from. At about feed time the SMS messages start coming through, “everything in store discounted” Specials on Cat products” or the frequent feeder program gives you 20% off.
So I shop around until I get the best price. The same product which is imported is available so the most desperate seller wins. Am I a faithful customer, well in part yes. One store offers better customer service and advice on pet problems. So I go there and price match.
Interestingly, in my last ten-odd years of buying pet food no one has suggested a substitute product. Not that they are not available, the range is quite big. The companies are in a price trap.
Change is in the air
Like pet food, I went to the local HiFi store to buy printer ink. Again my spending is regular but without the store offers. The usual thing is to say that X store has a special on and will they match it. Of course, sir anything to make you happy. This has worked for years but change is in the air.
They now say let's check X store online and see what they have to offer. Ok prices are the same ( is this price fixing) so that is the best we can do. Ah, but he offered me an extra 15% because I am a good customer ( this has always worked before) but not anymore. Management says we must have written proof so there is nowhere for me to go.
A 15% discount requires 50 % more sales to get the same profit, can you achieve that?
Concentrating on a sales period
This has become a popular method of moving products at a discount but for a very limited period.
Why do businesses discount on one day of the year
Amazon Prime day
In 2020 this day turned over $7 billion in sales and over half directly to Amazon.
Black Friday and Cyber Monday
Not content with one day of sales the retailers have stretched it to four days of spending.
In the US alone $8.8 billion on Black Friday and slightly less at $6.7b on Monday. In Australia, the weekend netted nearly $8 billion ( about $5.6 us billion) without the rest of the world considered.
Other Holiday periods
Every country has a peak time usually associated with religious holidays or celebrations
The problem here is that those that don't compete get hurt as sales decline.
As I write we are two months away from Black Friday and I have just scanned pages of ads already appearing. This has an effect on the October and November sales periods because buyers are waiting
End-of-season offers
These sometimes appear as early as mid-season but it is a way of clearing slow-moving stock and cashing up for new-season purchasing. Stock that sits idle should be sold off to the best buyers at pricing that at least returns cost.
Are there better ways of selling than on price alone?
- Rewards
- Incentives
- Prizes
- Service and support
- Guarantees for longer term
- Loyalty programs
- Exclusive products
- Payment plans
- Limited supply
- Training days
Discounting is just one way and most probably the most expensive of them all. So think about your total marketing to provide a better customer solution
Discounting is hurting you
Your buyers want to buy at the best possible price and the more you discount the more you decrease the value of the product. Maybe they will wait for the specials or use the competition against you but paying full price is not in the game. The public quickly gathers a perception of value and will look around for the best opportunities
The use of loss leaders
This is one way of attracting a crowd without destroying your margins. Particularly if you manage a better buying price from your distributors so that some profit is maintained.
Many major retail chains use this to great effect.
Conclusion
Discounting as a prominent sales focus is changing with the post-Covid period. Supply chain issues and online shopping have changed the buyer's ideal. Convenience is now as important as discount and good selling skills capture buyers before they start the shopping comparison journey.
