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Are Your Specials Actually Specials?

Avatar photo by Casey Woods, Executive Director | July 8, 2014

 A little extra thought can improve the effectiveness of your promotional sales
Retailers, bars, restaurants and service businesses often struggle with "specials".  Financial incentives through discounting can draw consumers into a business if conducted correctly, but without a plan they can simply decrease your margins without helping your business grow.  Too often, business people get so wrapped up in the rapid pace of daily operations that, when approached about running a "special", the first concept thrown out by staff is adopted without identifying if the discount concept gains more customers, increases traffic or increases sales.  
Below, we will cover a few quick questions you should ask yourself prior to running a special, and a few techniques that may improve both your foot traffic and gross sales volume.  First, the questions…
1.  What are your highest profit margin items?-
Create a list of items that, when discounted, don't put the item in the red.
2.  What are your highest volume items?-
Popular items "on special" may encourage more people to shop, but you must encourage the sale of other complimentary items.
3.  What items purchased generally encourage the purchase of other items?-  
People that buy an aquarium typically buy fish.  People that buy knitting needles buy yarn.  People that buy pants usually buy a top.  People that buy a gun need ammunition…  Think of items you can sell that encourage the sale of other items by looking at your customers buying history.
4.  When are your peak traffic times?-  
Peak traffic marketing encourages you to increase your foot traffic by assuming that you can draw others to heavy traffic times.  Finding when you are busiest can help with certain media buys and social media strategy.
5.  When are your slowest traffic times?-  
Sometimes you want to offset slow times by offering unique deals to encourage traffic and sales during non-peak hours.  If trends persist, you can look at staffing or other variable expenses that you can change during slow times.
6.  How do you collect customer information?-  
We didn't ask "do you collect customer information?", because you should be collecting information!  But, is your collection electronic at your point of sale?  Are you collecting business cards?  Do you have a drop box for customer information at your counter?  How are you grabbing information so you can reach back out to your customers independently?
7.  How do you encourage customers to advocate for your business?-  
Do you reward customers for saying good things about your business or posting positive stories about your operation on-line?  Do you have a way to say "thank you" to customers that draw other customers into your business?
Once you have answered these questions, it is time to develop a strategy that can improve your sales through incentives.  Not every strategy works for every business, but one of the common strategies below may encourage better limited sales if applied properly.
1.  A lead item strategy-
 October 2013 Mingle Lead strategies are typically used by "big boxes", but the theory can be adapted for small businesses.  Essentially, lead promotions find products that consumers are excited about, purchase often or are price conscious of and sell those items at a deep discount.  They make the discount up on everything else you purchase.  So, the store that sells diapers at cost generally has higher margins on groceries and toys with the knowledge that most people won't simply buy diapers on their trip to the store.
2.  Volume discounting-  
This strategy encourages the consumer to buy multiple items, or above a certain price level, in exchange for a discount or some other reward.  Unless you work in an hourly service industry, most people say that businesses truly start achieving profit when they sell more than three items to a customer during one trip.  Getting people in the habit of buying multiple items from your business can pay long term dividends. 
3.  Reference rewards-  
Saying the "phrase that pays", bringing in a coupon (electronic or paper), using a special rewards card or other types of reference based specials can help create an exclusive communication relationship with your consuming public.  It also serves as a good way to test the effectiveness of some of your media strategies.  If consumers know they get a reward of some sort by absorbing your advertising message, they are more likely to listen to what you have to say.
4.  Timed pricing-  
The most common use of timed pricing is the "happy hour" concept.  Restaurants may use timed pricing to get people buying high margin items like soft drinks during slow times.  Other places, like bars, will use happy hours to get people to their business immediately after work so they can capture a susceptible crowd.  But, other types of businesses can use timed pricing to either bump up their traffic during busy times or increase volume during slower time frames.  The key to a good timed pricing promotion is consistency.  Using the same hours or days every week to promote a timed pricing concept will eventually decrease your marketing costs to promote the timed strategy and create word of mouth.  Everyone knows Sonic has a happy hour, but they rarely promote it…
5.  Margin adjustments-
This one is a little trickier.  Some businesses (especially retailers), mark items up to mark them down.  While we don't suggest doing that for a sale, we do suggest that you look at the value of items to determine the consumers perceived value instead of simply using a formula to price items.  If you simply double the cost of every item (a process known as keystoning in the retail industry), you may get burnt on shipping costs, leave potential profits on the table or not give your business additional room to absorb losses on slow moving items.  From a promotional standpoint, you can run a special on a "dollar bin" or "$30 Rack" that doesn't include discounts in the form of percentages or dollars "off".  By taking the "discount" out of the discussion, you can maintain customer perceptions of value without subconsciously encouraging the notion that consumers only should shop you for discounts.
6.  Group packaging-  
Bundling items together can make it harder for consumers to ascertain the true value of a product group. Kari Crump  Thus, you can put higher margin and lower margin items together to create a more balanced profit profile for a sale.  And, in this era of "showrooming" (using store fronts to view items that you then buy on-line) group packaging makes on-line comparisons MUCH harder to accomplish.
7.  Exclusive recognition/artificial scarcity-
When we tested the Shop Hop concept, we needed a driver to encourage people to stop into stores prior to the event to pick up their passports.  Our method of choice was artificial scarcity.  Buy producing "only 100 tickets" and letting people know "once they are gone, they are gone", not only did we generate interest, but people told their friends about the event to ensure that they wouldn't "miss out".  Exclusive recognition has some of the same psychological components of "not missing out", but through the lens of recognition.  Businesses like Green Door Recycling often recognize their best customers simply saying "thank you", but their thanks has the residual impact of encouraging other "like" customers to become intrigued by products or services offered.  Notice, no discounts were offered, but the impact is the same as a "special".
For a special to actually be "special" in the mind of the consumer, it needs to have a limited scope.  I think all of us have seen ads for the "biggest sale of the year" at a retailer, that follows their campaign up the next week with yet another "biggest sale of the year".  That sort of constant discount pressure can hurt a brand irreparably and train consumers that your full price isn't worth it.  However, happy hours are a limited scope activity that are very popular and can encourage frequency spending and loyalty from your consuming public.
Know the strategies and answers to questions listed above.  A little additional preparation can mean the difference between a special that increases profits/sales/traffic and a special that loses money or damages your brand.  Take a little extra time with your point of sale system, your employees and some of your customers to design specials that can have a positive impact on your business.  Because the "that sounds good… we'll go with that" special usually doesn't do your business justice.  

About the Author

Casey Woods, Executive Director

Before accepting the director position in March of 2009, Casey worked in both retail and agricultural jobs in the family businesses. A lifelong resident of the Emporia Area, Casey was a ten year volunteer for Emporia Main Street prior to his appointment as director. During that time he served as the board president and chair of the Economic Vitality Committee.

Casey also serves as a partner in PlaceMakers, LLC, a consulting firm that routinely works with both large and small communities, and their businesses, to promote sustainable economic growth through community and economic development practices. Casey consults with businesses, organizations and communities to understand their market capacity and fill vacant spaces. He has been involved in two projects that included crowdfunding as a part of their overall business funding strategies, Radius Brewing and Twin Rivers Winery & Gourmet Shoppe.