If you’ve read my pricing posts you know that I love high margins. When it costs $20 to acquire a customer it’s hard to sell a t-shirt for $20. Since discounts destroy margins you’d think I hate them completely, right? And sure I hate discounting a product when the customer was going to pay full price anyway. That just leaves less money to do the things needed to run your business. But discounts can be positive when they bring your price to a level that someone who previously would not have purchased will go ahead and give you the order. So even if you make half of the margin your would have on a full priced item you’ve made infinity more than you would have from that customer.
So it’s wrong to say that discounts are all bad from a profit perspective.
Having said that, let’s talk specifically about some anecdotes from this Christmas shopping season.
Anecdote 1:
A week before Black Friday I learned about Barbell Apparel and decided that I’d like to try their henley shirts. They aren’t cheap, which is fine by me because every time I buy a cheap shirt I end up regretting it.. I was checking out and then found out that their apple pay doesn’t accept Discover cards. My credit card was in my wallet, which was in my truck. It’s cold outside. I closed the browser window and figured they would probably retarget me with ads and I would be reminded to try it later.
I was correct. I got hit with ads heavily. Their Black Friday ad actually had an error. It was advertising $99 pants, and then randomly had the text “any 3 henleys, polos, …”. But nothing about the price of the “any 3” promotion. Turns out they included a snippet of their Cyber Monday sale in the video and they weren’t on sale. I know because I asked about it in the comments on their ad. Smartly they replied and mentioned those items would be on sale on Monday.
So I waited for Monday and then I received the email about the sale. I bought three for $99. Normal price for one is $58.
What did we learn?
it’s good to monitor your facebook comments
Retargeting heavily works. I received emails and texts, and I was targeted on Facebook.
it’s bad to not proof your sales video before you launch it
the discount gave away $25 of margin on 3 henleys. I almost certainly would have purchased 1 at full price or less of a discount.
I probably won’t be back again very soon. I just bought 3 of them.
US merchants should accept Discover Card (and American Express)
the discount motivated me to purchase more items, but potentially at the cost of future orders and definitely at the cost of margin.
Anecdote 2:
Dicks had a 25% off sale. I have a fondness for a particular Nike shirt for my workouts. Currently I own 2 of them, which means I’m always at risk at not having one available if my workout frequency is greater than laundry frequency.
I purchased 2 more of the workout shirts because they are Nike and this is about as good as deal as I’m going to see. It’s a Nike Pro shirt and they don’t have clearance sales on them because they aren’t seasonal.
What did we learn?
From Dick’s perspective this was all pure profit. The discount motivated me to buy something that I could have done without.
The rarity of discounts on this item increases the effectiveness of the discount to motivate me to do something I would not have done.
Anecdote 3:
Retailers have so effectively trained their customers to wait for Black Friday through Cyber Monday that you could smell the desperation in the marketing in November. Many retailers launched their deals way before the actual event. My wife noticed this and pointed it out to me. I had also noted it. So this was hitting the stores she shops at, the stores I shop at, and the stores I monitor just to learn from.
What did we learn?
I don’t see consumer behavior changing. If you as a store owner decide not to join the discounting fray you’ll hurt your overall business because someone else will. The key is to try to use your discount to motivate behavior that wasn’t going to happen without the discount. This is difficult if not impossible to measure, of course.
Back to high margins. If you are going to have to discount, you better have the margins to do it. A 10% sale is not going to motivate anyone unless you never discount in the first place. I would say the bare minimum discount to impress a customer is 20%. That’s nothing scientific, it’s just that anything less doesn’t “feel” motivational to me.