One of the greatest barriers to profitability is discounting. In fact I’d go so far as to say discounting is positively evil, insidious and will send you broke!
Take any of the major retail chains who complain about their profitability. No wonder, given the level of
discounting they engage in.
Just walk into your local Myers, Target, K-Mart and even David Jones and see for yourself. Everywhere you look stuff is on sale.
Now don’t get me wrong. As a consumer I love it. I can buy good quality merchandise while saving big. Having said that though, I wouldn’t buy something just because it’s on sale.
Sure discounting will bring in customers in the short term, but it’s a terrible long term strategy.
Discounting takes money out of your own pocket and trains your customers to never pay full price.
Putting my business owner’s hat on, here are some stark figures which should, if you discount, scare the heck out of you.
For instance, working on 30% gross margins, and a 10% price reduction, you’d need to increase sales by a massive 50% to experience the same profit levels.
In the eyes of a customer, a 10% price discount is virtually pointless, yet the negative effect it has on your profitability is enormous.
So why do many business owners think price is the biggest issue?
They erroneously think providing heavy discounts will entice people to buy.
But they’re wrong. Most people don’t buy on price alone. In fact price generally comes way down the list when making the decision to buy.
Now I’ve written extensively about people’s buying criteria and how buying decisions are made emotionally and backed up by logic, so I won’t repeat them here.
You can find lots of articles on the subject at www.revealedresources.com/practical-tips.
For the sake of this article, let’s concentrate on how not to compete on price and increase your profits.
Arguably number one on the list is:
Customer service:
Walk into your local JB Hi-Fi, Myers, Harvey Norman and David Jones and notice the differences.
The obvious one is how many sales staff JB Hi-Fi have on the shop floor. They’re everywhere and I’ve generally found them to be extremely helpful and knowledgeable.
They know the features and benefits of their products, ask questions regarding usage and make recommendations.
Try doing that in your local Myers store. Just finding someone to take your money can be problematic.
By providing excellent customer service – before and equally importantly, after the sale, you will get more business.
Second…
Add value:
Bundle up your product with other items of high perceived value but low hard dollar cost.
You could throw in an extended warranty with a retail value of $100, which only costs you $5.
Car dealers often include metallic paint, mag wheels and spoilers at no extra cost.
If you’re buying a new camera, laptop or tablet, wouldn’t you love a decent case thrown in?
And finally…
Educate your market regarding the value of your product:
Most consumers won’t know about the quality of your products and the value to them unless you tell them. And the result? You get compared on price and the lowest price wins.
As a marketer and/or salesperson your job is to stop any apples to apples comparison. You need to differentiate your product and/or service from the competition so prospects realise the value of what you provide and fully understand the benefits as they relate to them.
By educating your market regarding the features and how each one translates into a benefit for the buyer, you explain the value in terms they can relate to.
The biggest mistake you can make is assuming people understand what actually goes into making your product or the nuances of how you deliver your service.
They don’t and frankly can’t – unless you tell them. And unless you do so, they can’t perceive the value.
To this end, we offer a series of business building packages which will help never you discount again. We’ll work with you to improve your customer service, create new product bundles with added perceived value, and create marketing and sales material which fully explains the value of what you provide – in terms your market will buy into.
Call us on (02) 9499-7958 to get the ball rolling.
Have us coach you through the process and you’ll never again have to discount to win the business. You will stay profitable while your competitors engage in race to oblivion.
