This came in my inbox from thesuccessfactory.com today.
Today's Tip
Subject: Discounting…yes or no?
Tonight's dinner table discussion was an interesting one. Two of my children work at the same neighborhood coffee shop. The coffee shop had a recent change of owners at the beginning of the year. The new and current owner - we'll call him Sam - is in a bit of a dilemma. After owning the shop for nearly eight months now - he is hard pressed to realize a profit. Of course there is the normal three to five year `curve' that applies to any new business, except, that this business has been open - with a very established customer base - for over six years.
So…what's the problem, you may ask.
As in most businesses, there are a variety of contributing factors - including too many Starbuck's within close proximity. However, a HUGE issue is the practice of discounting for `favorite' customers, established by the previous owner. Sam is now trying to do damage control in order to begin to realize some profit without offending the regular customers. It is a tricky situation to be sure.
I share this story today as food for thought for you and your business. Certainly there may be times when you run special sales for your customers. I would caution the practice of discounting too regularly.
Getting into the habit of discounting does several things:
Your customers will begin to balk when you charge full price and only want to buy when they receive a discount.
It devalues your product line.
As in the case of Sam - it is difficult to reverse once started.
MOST IMPORTANTLY - your business is far less profitable when you discount.
As women, sometimes we have difficulty being paid what we are worth. Some of us feel guilty for taking money and therefore “giving a deal” seems like the right thing to do. Men don't do this. Somehow, they are wired differently - I'm convinced of this. Men don't apologize for things they didn't do (ever notice how often women say I'm sorry for something that they had no part in?). Men don't feel bad about or make excuses for money they are paid for a job done; whether in the form of commissions for sales or fees charged if they are a doctor, lawyer, accountant, etc;. The `why's' behind this phenomenon is the stuff self-help books are written about and not the subject of today's tip.
Just remember - you are in business to make money. If you are not in business to make money - then you probably will find yourself with an expensive hobby. Hobbies cost money - businesses make money…period.
3 comments:
This is a great subject, and I completely agree with your comments on it Annette!
Having a gift shoppe, I learned to do what many retailers do...put certain items on sale in hopes to bring more customers into the store, and then after they are there, of course they normally would also purchase additional items. (Sounds just like a trip to the grocery store, right?)
With our Noah's Ark businesses, we do not have the variety of products, nor the storefront, to really do this type of discounting.
Our promotions are wonderful, but I think those need to be left for large quantities such as the daycares and schools, the way they were intended and do not offer those at the $10 price point to smaller groups at all. Plus, we are in business to make money, and that is what we need to do. If we offered low prices all of the time, we would only be shortchanging ourselves for the same amount of work.
In fact, in "everyday" business, I do not offer any sales discounts, but will only offer the free basic collectors club Mojo to the birthday child or host.
I will however be offering "show specials" while doing any expos, fairs and special events such as those. I have learned that when people attend these events, especially the wholesale gift shows, that many only attend just to get in on the show specials. So I think they are almost necessary in doing successful shows. And I see this at regular shows also and offering a special at the show does get more purchases made the day of the show. I know which local vendors offer specials at shows, and I do take advantage of them when I am able to, but pay regualr prices the rest of the year.
The show specials I will be offering will vary, but will be in the lines of a percentage off, or buy so many and get one product free, or purchase an animal and get a great deal on the outfits, that type of a discount. It does encourage more purchases during the show, and more people to actually book their workshops that may be a few months down the road, just so they can take advantage of getting the discounted price that day. I will even offer a gift to potential crew members who sign up the day of the events.
Of course I do give out discount coupons and things as donations for local things as well also...but those are not in everyday business.
If you discount often, then yes, people will expect a discount, but if you limit those discounts to an annual show in that town, for instance, then people begin to tell others and will try to make it to the show to take advantage of the special, but will also know that the rest of the time they will be paying the normal cost, and have no qualms about it.
I think I am rambling on more than really answering the post..unless anyone can actually make sense of what I am trying to say...lol
Teresa
Well said Teresa. I just think if I give "Betty" a discount on the animals for her party, then all her friends will want the same discount. Before long, everyone is getting a discount and you can't sell them for regular price. This is another reason I like the SOU cards. I'd also rather give the "discount" in the form of rewards, like for a daycare that does a large workshop, give the daycare itself a free animal or visit from Mojo. So, they feel they get more for their money, but they aren't pay less for what I provide. OK, now I'm rambling.
I like the way you said that Shelley - giving rewards instead of discounts. Perceived value is what counts and there are a lot of things that we can do that don't affect our profit margin that will give the superior service that brings repeat business.
And I'll say this over and over... I've learned from my mistakes in this. In one of my other businesses all I did was give discounts because that's what I set myself up for by giving them in the first place. Ugh... no wonder my bank account was always in the hole even though I was doing everything else "by the book" - parties, recruiting, everything.
In some ways I feel like this is my personal mission - to help crew members see that this business CAN work without discounting and to help those husbands to see the checking account balance go UP because of the business so they'll say "when's your next party honey" and become their wife's greatest supporter in the business because of it.
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