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The Art of the Deal

Avatar photo by Casey Woods, Executive Director | November 29, 2017

Retailers are forced to compete for consumer dollars. With the ascension of on-line sales and other direct to consumer portals, customer competition is more intense than ever. In response, many business resort to discounting to drive traffic. Lowering prices can influence demand- to a point, but the demand for products based on price is more complex than some might think. The following are some pricing strategies and concepts that you might consider when attempting to drive consumer traffic.

1. Demand pricing is elastic, so small discounts may not move potential customers.
Have you ever seen a store advertisement for “10% off-store-wide” and responded “meh”. The idea of enticing a potential customer with a “deal” is to make the deal too good to pass up. Small, blanket, discounts often simply result in consumers getting a “deal” that they were unaware existed.

2. Be careful not to give away the whole store.
When discounting- “whole store” discounts typically don’t create good data on the effectiveness of a promotion. Smart businesses choose items as “loss leaders” to draw in the consuming public and “up sale” on regularly priced merchandise. If someone simply walks out with one “deal” and no other merchandise, the promotion was ineffective.

3. Highlighted items may create more demand and brand awareness.
Some small businesses have a hard time conveying the breadth of their product or service offerings. When businesses state “20% off store-wide”, they are missing an opportunity to discuss some of their unrecognized products, their best brands, or their special seasonal merchandise. When the same store highlights a deal on a particular item, consumers instantly know something about what that store sells.

4. Reward repeats.
It is almost always more profitable to maintain existing consumer relationships than to generate new ones. If you are going to hand out targeted discounts, look to your best customers first. Provide “bring back” coupons for people that purchase at your store. Create special shopping nights for top customers (with an extra invite for a guest included).

5. Don’t get predictable.
Some stores discount like clockwork. In those instances, many consumers will just “wait them out”. Any sort of announcement that indicates eminent discounting or “deals” should include some planned variability to encourage multiple shopping encounters.

6. Reward volume purchases.
In retail, the saying goes: one items loses, two items break even, and three or more is where the profit happens. You are spending almost the same amount of time, money, and effort on a customer that buys one item as the customer that buys five items, but one customer typically makes you more money. Try and find ways to encourage multiple item sales whenever possible. Of course, there are exceptions to every rule, and “up-selling” people in a hurry can get annoying for the consumer. Plan out volume discounting, and emphasize multi-item sales when the opportunity presents itself.

7. Your discounted structure shouldn’t force consumers to become mathematicians.
Have you ever heard a sales person try and explain a sale with multiple percentage discounts, dollars off vouchers, and volume incentives in the same transaction? Complex discount structures are frustrating because it is simply too hard for the average consumer. Shopping should be fun. If your discounted scheme requires a graphic calculator to figure out, it’s probably not fun (or effective).

8. Price by value, not by keystone.
Some retailers get in trouble because they create a uniform margin for every wholesale product. While this works in some limited industries, most retail is driven by the perceived product value- not the percentage mark-up. Allowing higher mark-ups on certain items with a higher perceived value can give you the opportunity to create more dramatic discounts on targeted items while mitigating losses.

9. Experiences trump percentages off.
If you struggle to pull people into your place of business without discounting, it may indicate something is off with your product mix or branding. Discounting can be an effective tool, but it shouldn’t be your only tool (or even in your top five tools) to generate traffic and sales. It’s okay to offer incentives to customers, but too many discounts can lead to customers expecting discounts every time they patronize your place of business. A discount mentality will eventually damage your brand and erode your pricing margins. Focus on the creation of experiences that will allow consumers to interact with your business, products, and services beyond what is on a product sticker.

The origins of the word “business” can be found in a French term meaning “a body of soldiers”. Retail can seem a little war like at times, but it seems an appropriate evolution of the term. Successful businesses utilize creative strategies to achieve an objective, just like a “body of soldiers”. Make sure your pricing strategies are working for you this holiday season, and, like always- contact Emporia Main Street if you need some assistance.

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.