When to offer discount
Discount doesn’t help bootstrapped businesses
Pricing
Discount doesn’t help bootstrapped businesses
When the business wants to sell non-moving items, they offer promotional discounts. Discount affects the marketing margin. Marketing margin equals the item price minus cost of goods sold and promotion amount/ discount.
Database marketer Kevin Hillstrom explains marketing margin:
Item Price = $60.
Promo Amount = 20% off, or $12.
Cost of Goods Sold = $20.
Marketing Margin = $60 — $12 — $20 = $28.
Pre-Discount Marketing Margin = $60 — $20 = $40.
According to Kevin it impacts businesses in three ways:
1. Best-selling items that did not need to be discounted because they were already priced appropriately are now sub-optimised for profitability.
2. The perception of the brand is tainted … the brand is no longer a full-price provider, but instead is a brand that cheated customers who paid full price.
3. Marketing Margin decreases — meaning that other marketing opportunities cannot be invested in because the marketer decided to spend the delta between price and cost of goods sold on discounting.
Marketing professor Mark Ritson wrote,“If your quality is good, and your targeting and positioning are right, have confidence in the price you have set and do not consider dropping it.”
Discounting should be a last resort, reserved for specific items that are not selling well. Discounting also shows that the local business does not have the pricing capability.