When you make a discount, you have an opportunity to gain new customers, please existing ones as well as get rid of some slow-selling products. To get the most out of your discounts and make them as profitable to your business as possible, a good discount containment strategy must be used.
When you lower your price at a discount, you’re also lowering your traditional profit margins and increasing your risk. Going from selling at a small profit margin to selling at a loss can spell disaster for your business.
When creating a containment strategy for your discounts, you should always keep the following things in mind. By doing so, you’re not only lowering your risk but also making the entire process much easier.
Setting a target for your discount
Discounts that don’t have a target from the very beginning are a recipe for failure. If you don’t have a target to achieve by having discounted prices, you will probably end up losing money. You can also find out -after the discount is over- that it didn’t do what you originally had in mind.
Before you create a discount, ask yourself why you are doing it. Are you trying to get rid of some slow-selling products? Are you trying to get customers to try more of your products? Is this a part of a seasonal sale? Are you trying to penetrate a new market?
Knowing the answer before you start can help you pick a discount strategy that’ll work for your business. You’ll also be able to develop a successful price containment strategy that will protect you from loses.
Choosing the right discount strategy
To most people, all discounts are basically the same thing, which is “lower prices”. However, this is as far from the truth as it gets. There are plenty of discount strategies out there and choosing the right one is essential for success.
Choosing the right discount strategy is half the work. The other half is the prices research before the discount and the results analysis after it’s over. The answer to which discount strategy should I choose question lies in your business itself.
Your industry, as well as your target customers, have a direct influence on choosing a discount strategy.
There are many discount strategies out there. The following two, however, are tried-and-tested methods that are proven to work, especially for retailers. You can choose one of them based on the goals that you have set for your discount.
Buy one, get one free
This is one of the most popular discount strategies for a reason, which is the fact that everyone understands “free”. People might not be that good when it comes to calculating sales percentages. They are exceptionally good however at understanding the value of getting something for free.
An effective discount containment strategy to use with a buy one, get one free offer is to pair different items. The item that people pay for has a high-profit margin while the freebie is a cheap item that isn’t selling well. By doing so, you’ll get rid of an item that isn’t selling well without taking a loss.
Bundled items being sold together is an offer that most people find hard to resist. In a bundle sale, you offer people multiple related items that are being sold together for a discounted price.
You can use this strategy to sell lots of your best sellers as well as the items that aren’t selling well. Most people will buy the bundle since it has some of the product they’re already familiar with.
Another advantage of the bundle offer is that you can get people to try products different from the ones that they are already used to. Without the bundle offer, they might have been hesitant to try these products.
To make sure that you don’t end up losing money on your bundle sale, make sure to include products with different profit margins. By doing so, you’ll have different products in the bundle working together to make it up for the discounted price, so you end up with a fair margin.
How can Sniffie help?
When creating a discount, having a proper discount containment strategy is essential. By having a good strategy in place, you’ll be sure that your discount ends up achieving its goals without you ending up losing money.
By helping you find out about the prices of your competitors, Sniffie helps you create a solid discount strategy that pleases your customers without hurting your business.
How to use discount containment
- Set your desired outcome from the discount.
- Conduct a market research to know your competitors’ prices.
- Find out if your discounted prices are competitive with other offers in your market.
- Choose a discount strategy that works best for your business.
- Start the discount and measure results.
- Used when creating discounts to make sure they don’t result in loses and achieve their intended goals.
- Never start a discount without pre-set goals.
- Make sure that the discount strategy you chose is right for your business.
- Be aware of the effect of your discount strategy on your brand image.
- Analyze the results of your discounts to make sure they are achieving their goals.