Who Pays The Price for Discounting?
Britain loves a good BOGOF. The phenomenon of the ‘Buy One Get One Free’ offer has proved so popular on our supermarket shelves that it has also become commonplace in other sectors, such as holidays and home improvements. It’s even been known to penetrate the business-to-business building products market. This week, a report by the House of Lords European Union Committee has ascribed some of the blame for the 15 million tonnes of food thrown away by UK households each year to the BOGOF deals in our supermarkets, calling for an end to the practice.
For me, the level of food wasted is not the shocking element of this story: the retail sector’s success in selling consumers something they don’t need and won’t use simply because it’s perceived to be offering them better value is equally remarkable.
It demonstrates the importance of a sales strategy; and selective discounting is often at the heart of customer acquisition and retention, regardless of the sector.
The problem with generously discounted offers is that there has to be a pay off somewhere along the line. So while double the amount of cheese or meat pies or salt & vinegar crisps for the same price may be appealing, when you get to the check out and find that other items in your trolley have cost more than usual to compensate for ‘loss leaders’, those extra ‘free’ items that you didn’t know you needed may have cost you more than you thought.
In the business-to-business world the same principle applies: to achieve a baseline profitability, there has to be a payback for the discounting somewhere: whether it’s a price increase on other product lines, reduced service levels, longer delivery times or lower product quality.
All of these factors need to be taken on board when developing a sales strategy, along with an understanding of what the market will allow in terms of pricing and what the customer has come to expect in terms of discounting.
The essential thing is that a sales strategy should be consistent across your business and based on a current understanding of both your customers and competitors. Without a defined sales strategy you risk compromising your profitability by over-discounting or compromising sales volumes by over-pricing.