Everyone wants growth. Business plans and strategies are designed in line with what growth is desired. Customer engagement programs, visibility, promotion, etc are budgeted to reach the objective. These are then downloaded to the entire system so that everyone is prepared to meet the goal. According to me these and many other are the various methods that companies take to drive the business to growth. As long as companies take decisions that do not disturb the price, it’s okay but the moment they start discounting, things fall apart.
Being a market entry strategist, with the clients that I have worked with, I have always advised them ‘never to discount a brand’. Yet, I see so many companies who use these resorts to meet short term business targets by jeopardizing the long-term vision of the business. This article will talk in detail about my views and opinion on discounting.
There is a particular set of people in the business of sales who do not understand anything but discounts. They are victims of the so-called sales targets. Without having a deeper knowledge of how discounts works, only to get to the volumes they end up convincing the management to give discounts (sometimes deep discount). The result is that they get a good chunk of orders from the market, give them to the distributor who then raises primary order to the company, and sales number increase, resulting in targets being met. This is usually followed by a wine and dine party in celebration that the number was achieved. That’s short-term. Now let us look at what are the long-term consequence of this strategy.
Business starts as normal the next month but this time the numbers do not happen. The monthly meeting is done justifying how discounting helped in getting the sales up. Based on past records and data (depends on how you analyse it), the management can see that how discounting had increased the business in that particular month. Being convinced the management now sets a quarterly budget for discounts. The happy sales team now works on the same phenomenon of taking the orders, billing the distributor, and reaching the numbers. The first month goes well. However, what seemed easy in the first month becomes a little difficult in the second month and very difficult in the third month. Somehow, because of the limited knowledge, they are unable to foresee that they have caused damage that is beyond repair.
The sales that were happening initially, why did it come down? Should the company now start giving more discounts? Or there is a new competitor in the category? These and many more questions pop up in the management. Let me address this phenomenon scientifically.
Store Name: ABCD
Average business per month: 500 pcs
Business after 1st discount: 800 pcs
Business after 2nd discount: 600 pcs
Business after 3rd discount: 400 pcs
Total: 1800 pcs
Average sales during discount period: 1800 / 3 = 600
Growth in percentage during the discount period of 3 months is 20%
If we look at the above working and take out the average growth in percentage that the company achieves in the 3-month discount period is 20%. As months pass the growth rate will come down and reach a level which the company would have achieved even if it did not give the discount. Eventually, if an analysis is conducted at the end of the year, one will be stunned to see that the percentage growth that the company achieved in that particular store is not as significant as they projected. Much to their surprise, they will notice that they could have achieved the number even if they did not give the discount. But because they have given the discount, they are now in a trap. The store will keep on asking for discounts. The customer now has made it a habit that I will purchase this product only when the discount will come, till that time I will buy another discounted product. The company holds on but the sales do not happen as desired. There is pressure from the store to the sales team who then put pressure on the management; who has no choice but the discount it further. While these things are happening, the sales team is looking at numbers. On the other hand, the company is losing heavily in margins and finding it difficult to run the business.
That is the state of most of the companies and therefore much close down.
Sharp Consulting and Implementing Company, believes in the brand philosophy. We have been very reserved in suggesting discounts as the method of growth. We understand how do the market and the stores work. There are many other strategies will help business grow without discounting the brand. We have successfully implemented it with many of the clients. Our recent client has understood in-depth how to create a successful business without discounts. We have shown them that they are not into the business of sales, they are into the business of customer creation. The more the customer the more the sales. When the customer comes to the store asking for your product, everyone is powerless. It the brand that is powerful and no marketing strategy can beat this.