In the third Get The Most Out of Your Marketing podcast Glenn Bartlett and Jeff Cooper from Step Change examine how a business get the balance between discounting promotions and margin right. Each month the guys show you how to increase your sales, generate more traffic, attract more attention, gain more credibility, outsmart your competitors and offer a unique customer experience that will keep your customers coming back for more.
How Do You Balance Between Discounting Promotions and Margins?
In this question we will explore the following topics:
- Finding your business objective and positioning
- Low cost strategy vs differentiator strategy
- Observing your category
- Up-selling and cross-selling
- Finding your competitive edge
- Making strategy fun
Background: Background: Sells stylish mirrors
Finding your business objective and positioning
Do you drive margin, build brand or sell volume? These are all objectives you need to think over in order to understand what strategy to use. There is a lot of discounting in fast moving consumer goods (FMCGs) but most of these are public companies trying to meet stakeholder expectations by promoting a high product turnover. If you’re not an FMCG, this gives you more freedom around this.
Is your product a premium price product, a differentiated exclusive product or a value-cost product? Depending on this, your positioning tactic will change.
Low cost strategy vs differentiator strategy
There are usually only two business strategies. The first is being the low cost provider. The second is being the differentiator. Now, there is usually only one winner in the low cost area, which makes it a difficult playing field. This means you’re a differentiator. Being a differentiator means you need to think about discounting in a strategic manner. You need to ask yourself what the role of discounting is for your company?
Understanding your category area will give you insight into what the category norms are and what you need to be doing. For example, pharmaceuticals rely heavily on discounting, so it will be difficult for you to avoid discounting. Consumers have been educated to shop around online which means you can’t avoid discounting so your strategy needs to be based around showing them that they won’t get a worse deal by coming to you. When they come to your store, you need to show them that what they will get is value.
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Up-sell and cross-sell
You need to explain the value behind your pricing if it is higher i.e. offering complimentary gift-wrapping or a delivery service. Make sure there is value at the point of purchase. At McDonalds and how they ask each customer “would you like fries with that?” This is a great way of closing more sales by using the up-selling tactic. At low cost airlines, they always try to cross-sell you by asking “would you like to book a hotel?” A lot of categories use this to close more leads so it’s important for you to think about where this fits into your business.
Finding your competitive edge
When someone enters your store, you need to now use value to close the sale. For every product in your store, you need to tell your consumer why that particular piece is better than your competitor’s piece. For example, you might explain that your mirrors are made of a higher-grade glass, that they last longer and are shatter proof. You need to ensure that every customer always sees your value, as people naturally want to make the better decision. Discounting is a great way to win customers but using value is a great way to prompt them to pay a little more.
Avoiding discount cycles
It’s important to try and avoid creating discount cycles where you end up having customers that expect it. Strategically, discounting is used for trialling products in FMCGs and used to drive distribution as a negotiation tool with retailers.
Strategy: Make it Fun
People love to play. You can make discounting a fun game for everybody to engage in. Seeing ‘25% off’ and ‘50% off’ has become boring and people become numb to it. Do something different. Perhaps you can give away a free mirror to every 10th customer. People will then come into your store wondering if they are the 10th customer. People will then tell their friends they got a free mirror and people will come and visit. This drives traffic to your store and you then use your value to make a sale.