On the one hand, a discount is an effective method of stimulating sales. On the other hand, it is a headache for the seller, who wants to earn, not lose income. We calculate the optimal size of the discount, so that everyone stays on the plus side: both client and seller.
The discount must be reasonable
Don’t discount just because “everybody does it”. You must have a specific goal, from which you will build on: to formulate the price, measure and analyze the results of the action.
To get additional profit.
An entrepreneur sells cosmetics. Every year he holds two-week promotions before February 23 and March 8. Discount on each item is 20%, but the goods are sold only in sets. That is, the buyer receives a discount in exchange for an increase in the volume of single purchase. The result of the action is judged by the entrepreneur to increase profits.
Attracting new customers
Online store of women’s clothing is going to expand the clientele. New customers who register on the site are given a discount on dresses – 25%. The company wants to increase sales and is prepared to see a decrease in income from the sale of dresses for the duration of the promotion. The store will stop the promotion once the loss of profits reaches the 20% mark. The result will be judged by the number of new customers.
Getting rid of merchandise leftovers
The entrepreneur sells goods for dacha and vegetable garden. By the end of the season, a residue of seasonal goods has formed. Since storage until the next season will eat up 15% of the price of these items, the entrepreneur decides to sell the leftovers at a 10% discount. The result of the action: a reduction in the amount of money lost due to savings on storage.
Explain the discount to customers
People need to understand why the product is cheaper for them today. Expiration date – that’s understandable. Seasonal discounts are also understandable. Just a promotion or a sale – it’s not clear. What’s the matter: no one takes it or the price was initially exorbitantly high?
This is what unreasonable discounts lead to:
Your product or service becomes cheaper in the eyes of the customer;
customers stop valuing the product itself, and focus only on its value;
people get used to discounts and stop buying at full price.
As a result, discounts ruin business rather than increase customer loyalty.
How to Make Discounts
Take care of your budget and follow some simple rules:
- Don’t give small discounts to attract customers. For example, a 5% discount is more of a nice bonus than an incentive to buy. If the customer wants your product, he will buy it for the full price.
- Analyze the market situation. You need to know your competitors’ rates so you can respond to a customer’s request for a discount. Customers can manipulate you to bring the price down as much as possible.
- Don’t give a discount that will drive you into negative territory. A prospective customer can go to a competitor at any time, and you will suffer a loss.
- Think through situations in which you are willing to take a price reduction. Develop your system of discounts and follow it. Lack of a system leads to loss of profits.
- The size of the discount depends on the profitability of the business. The higher the margin, the more opportunities a company has to attract customers at a bargain price.
- Thoughtful and carefully calculated promotions make the company money.