One way to attract customers into your store is by having discount sales. However, a study by Olin School of Business at Washington University in St Louis shows that some promotions may actually hurt future profits. In short, the study’s authors believe that discount sales aren’t always best for retailers and manufacturers, just bargain hunters. Why?
An addicted bargain-hunting customer may come into a store just for the discounted items and not for the sales intent while repeat shoppers will come into a store regardless of whether an item is on sale or not. According to a recent article from the Associated Press, this concept is especially true because of the great recession and how businesses desperate for sales slashed pricing on so many items. Many shoppers began shopping for bargain-only common items.
How Discount Sales Help
When a store marks down items, it does stimulate spending, depending on customer brand loyalty. It also stimulates profits, depending on customer expectations of current and future promotions. Mark-downs will help you move products that may have been parked in your storeroom. Still, it’s important when you move items by mark-downs and sales to reduce sales junkie fever, a peculiar malady by which some shoppers feel that discounts are perpetually owed to them. To avoid this, create a reasonable sales strategy for each season. This shows that you plan for your customers’ shopping happiness while giving them the understanding that sales have a reason and a season. The strategy should be based upon past sales statistics.
Smaller merchants don’t always have the option of returning unused stock, so markdowns become necessary. To help having to mark down too much stock, keep your stock at a reasonable level thus giving you more leeway with your cash flow. This will give you more control as to when you must have a sale to sell merchandise that may not move otherwise.
How Discount Sales Hurt
What sells on discount sales doesn’t always give a good reading on future customer purchases. Quite a few customers stockpile sales items, which can hurt your future profits should you then stock merchandise expecting buyers at normal pricing. If you fail in your future business planning to grasp that a certain number of customers will buy and stockpile sales items, you can expect serious erosion in your profit margins. Also, too many regular pricing discounts may cause your loyal customers to loss interest in your store as a “brand.” You could become that cheap place down the road and be eyed like the man selling twenty watches on his arm. Oh you will attract bargain shoppers, but not necessarily build up a faithful clientelle who will shop at your store when you aren’t having sales.
Keeping Your Customers
In order to keep all your customers happy and thus you, you need to keep loyal customers while gaining the bargain hunter should you have a discount sale. One thing you could do is discount products that loyal customers aren’t likely to buy. People aren't concerned with the in-store pricing of what they don't buy. Plan for bargain shoppers as a strategy where you buy in bulk for a lower cost to you. You can then sell to bargain shoppers who will purchase them in mass, making you a good profit. To do this though you need to have competitive pricing on regularly stocked items which your loyal customers buy. For loyal customers who only buy the top brand or service for the quality at top dollar, have a special loyalty discounts program.
Discount sales can help earn profits for your business if done correctly. Bargain addicted customers are still good people and good customers; after all. Business plans, not bargain hunters, are bad. Discount sales stimulate customer curiosity and gets shoppers into the store. Once you have the customer in your store, it’s up to you. Do discount sales right and success may be yours.
Image courtesy of Danilo Rizzuti / freedigitalphotos.net
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