Written by Jim Stokes
When it comes to building your business, discounting can be a Faustian bargain: an immediate benefit that winds up costing you. A lot.
That’s not to say discounting is a bad idea. But like any idea, it depends on doing it the right way, at the right time, for the right reasons. Over the years, we’ve helped many of our retail clients create discount programs that drove profit, without sacrificing brand equity. Here’s some of what we’ve learned.
WHEN TO DISCOUNT
When done at the right time, discounting can accomplish a number of key objectives.
Let’s say you’re opening a new location or launching a new service/product. Depending on your competitive landscape, discounts can be a great way to create consumer awareness and motivate buyers to check you out. Once you have folks in the door, you can use that opportunity to start building longer-term relationships.
And that’s the crux of smart discounting—transforming transactions into relationships. Sure, it’s great to get that bump in sales. But the entire point is to create lifetime loyalty.
When else to discount? When you need to move inventory, as a hook to cross- and upsell, and to drive traffic during typically slow sales periods.
HOW TO DISCOUNT
In a word, carefully. All too often we’ve seen companies—even entire industries—become so dependent on discounting that consumers simply wait for the next sale, which they know is right around the corner. Think cable TV. Or mobile phone service.
Granted, these industries are so big they can afford to offset a lot of that cost. And they recoup most of it through long-term contracts. But if you’re reading this, we’re betting you’re not that big. If you just have sale after sale, your customers will soon become so hooked on deals that your brand will cease to have any value. You’ll be perceived as low quality, become a commodity, and spend your time racing to the bottom.
The key is to use discounting as a part of an overall business strategy, not as a strategy itself. Examples include growing your market share, increasing frequency, and boosting average ticket values.
WHERE TO DISCOUNT
If you can afford it, TV is a very effective medium for discounting—especially when concentrated around specific events or time frames, like a Memorial Day sale or a back-to-school promotion.
Direct mail is another way to get the word out. It’s a lot cheaper than broadcast and can be geo-targeted around a specific location. The same goes for online display and search. It’s cost-effective and immediate and can be accurately tracked. A word of caution however: be careful of online offers using group discounts. Many local retailers have learned the hard way that steep discounts, even for a limited time, can overwhelm your operations and kill your margins.
But of all the places you can reach your customers, one is often overlooked: your location itself!
Think about it. What better opportunity to capture your customers’ attention than when they’re already in-store? We’ve had tremendous success with just that idea.
Our SpeeDee Oil Change & Auto Service client was looking to generate additional weekly car counts. Research showed that many of its customers had two cars, so we developed a rearview mirror hanger that included an incentive for customers to bring their other cars in.
The offer was for a limited time, so customers knew they had to act soon to achieve the discount. It also presented an opportunity for SpeeDee to promote other services that most quick lube’s don’t offer, therefore driving home its advantage as a full-service, one-stop shop. This promotion proved to be a tremendous way to cost-effectively build car counts.
However you look at it, discounting can be a very effective arrow to put in your quiver. But before you shoot, make sure you know your target, be clear about your goals, and align your program with the rest of your marketing mix.