'The Perils of Discounting' Article by Tina Zawila

In typical January style, the year seems to have started slowly for most retailers, as customers recover from their Christmas blow-out, try to repay credit cards and stick to their new year budget.

Therefore, we have fielded a few enquiries from business owners about ‘having a sale’ and ‘offering discounts’, in a bid to drum up business.   Whilst I fully understand their motivation, most business owners do not fully realise the dangers of discounting.  

Without going into lots of detail with the numbers, as an example, a business that operates on 30% gross profit margin, who offers just a small 10% price reduction, would need to increase sales by a massive 50% just to achieve the same profit levels!   Frightening isn’t it.

So what can you do to drive business instead?

·         Improve customer service – when customers are amazed by your service, price is usually the last thing on their minds.  Did you know that 68% of customers who leave a business do so because they believe the business owner and/or team feel indifferent towards them – that they couldn’t care less about their needs or about whether they purchased or not.  Make your customers feel loved!

·         Add value – Instead of discounting can you bonus in another product or service?  For example instead of offering a $30 discount, can you bonus in a product that has a perceived value of $30 but a hard cost of just $5?  That way, you have only shaved $5 off your profit instead of $30.

·         Educate your customers on the value of your product – One of the reasons why people shop on price is that price is the only thing they have that will enable them to compare products and services – but that’s because you haven’t told them the benefits that your product or service provides! 

For more information, advice and tips on how to stop discounting and increase your profits, call the professional team at Sothertons Gladstone on 07 4972 1300.