Discounts Effect Retail Sales Targets
- Tom Modeen
Discounts Often Fall into the Category of Pricing Errors
The effect of discounts in retail pricing should be clearly understood. It will sell more product, but to achieve balance, more product will have to be sold.
A great point of sale system will provide plenty of sophisticated reporting tools. It provides a comprehensive, historical sales analysis of the items you carry in your store and their competitive footprint. This is essential to identifying products that best fit a discounted price model. The proven approach is to pricing is to “merchandise.” “Merchandising” takes into account loss leaders as well as non-shopped items. Seasonality, product changes and overall product mix also factor into an effective pricing strategy.
Other factors include the age of the consumers you serve. If your primary audience are senior citizens, low prices for baby care products have little effect on sales. If your sales are driven by ethnic products you need to have a clear sales analysis of which product have high movement vs products that don’t sell.
Product movement should carry a great deal of weight in your decisions to reduce prices. If a particular product is moving well, further discounts to that item could be construed as a pricing error. The only practical reason to reduce prices on such items would be to classify them as “loss leaders” to drive more store traffic. To ensure desired profit margins and stimulate sales, an informed plan of incorporating POS reporting data should be embraced. This will shape your outlook and decisions.
Any decision to lower an items should be tempered by its net effect on gross sales. Understanding the implications should be a key component of your strategy.
Bob Twain posts a great article here on how discounts play to great effect in your overall gross margins and sales.
His article details how much product you will need to sell compensate for applying discounts. The analysis is startling and food for consideration.