Discounting Can Cost Retailers Millions In Lost Sales

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The word “discount” is often sufficient to grab the attention of customers. People love buying things while paying less for it than its original price. It brings a sense of accomplishment.

This has been used to the advantage of retailers. Discounts, sale, clearance sales, end-of-season sales and offers pretty all do the trick. They attract crowds of people, who buy things they might not need only because they are available at a lesser cost.

Naturally, sales will boom and your business does very well. However, the fact is that these discounts ultimately can do more harm than good. To get to the crux of the situation, there are a few things every retailer needs to know about discounts.

The Theory Of Discounts

Discounts work because they are always for a limited period. This gives the customer the illusion that they are missing out on something very important. They are forced to make a quick decision and this urgency is what compels them to buy most often.

People seek pleasure and tend to avoid pain. The thought of losing out on an offer isn’t a particularly appealing one. Discounts are tempting because people always want to save money. Who wouldn’t want to buy a product at a lower cost?

How To Choose The Best Discount

There are many factors that need to be considered before you offer a discount on your products.

The retailers have a ton of data to analyze. If the data is analyzed after taking in all the factors, chances are that the discounts will leave you with a profit.

  • The timing of the discount needs to be just right. If you put out winter clothes on discount, you don’t stand to gain much. You need to have discounted products that are needed and on demand at that time.
  • The product that you have chosen to sell at a lesser cost needs to get sold. The idea of a discount is to make a profit by selling more of the same. More customers will increase your sales margin.
  • The product should be popular. It needs to be what the customers are in need of. There are lower chances of customers buying things just because they are at a discount. There are people who do that, but the number is far too less to lead to a profit.
  • Keep an eye out on surrounding retailers. Do not put out discounts that are too high just to beat the competition.
  • Have sales at the right season. People tend to shop more in the holiday season. There is a higher chance of getting sold out when there are more people willing to buy.
  • Do not have the discounts going on for too long. This might leave you with a loss. Also, the customers will get accustomed to shopping only when there is a discount.
  • Do not have too much of a discount either. This might leave the customers thinking that the product is cheap and undesirable.

Learning From The Grocery Aisle

When retailers look for products to have discounts on, they look at the frequency of purchase and the spending habits of the customers.

This is where a misjudgment can cost millions.

Have a slight growth margin of 1-3%. While setting this margin, account for all the additional expenses as well.

The grocery industry analysis has certain factors that are added as well.

  • The cost at which you are buying might increase.
  • The products might not be available.
  • They products might be damaged/infected.
  • There might be a shortage of the product.

In these situations, a discount will cause more loss than profit. They cannot be predicted. Calculate these factors and come up with a reasonable discount strategy to avoid losses.