• Barcode Ireland Team

To discount or not to discount, that is the question…. in retail.

Everyone loves a bargain.


Retail store window displaying sale signs.

The very first discounting strategy is said to have been conceived by none other than the Coca-cola company back in 1887. In order to encourage customers to sample the new carbonated drink invented the previous year by John Pemberton, a bookkeeper for the company dispensed hand written vouchers for ‘free tastes’ of the ‘refreshing drink’.

Pemberton regarded this an extravagance rand rebuked his bookkeeper. However, a year later, tycoon and new owner of the company, Asa Giggs Candler, recognised the value in the bookkeeper’s incentive and mailed out thousands of the tickets. Between 1894 and 1913, an estimated one-in-nine Americans had received a free Coca-Cola drink, in total 8,500,000 free drinks. By 1895, Coca-Cola was being served in every US state.

The discount voucher and a key marketing strategy was born and the rest, as they say, is history.

For many years, discounting has been the top pricing strategy across all retail sectors. It’s commonly used to drive up short term retail sales, entice new customers, retain valued customers and move stagnant merchandise. Discounting however popular isn’t always effective, it can result in reduced profit margins and cause brand and reputational damage.

It’s therefore important to weigh up the advantages and disadvantages of adopting a discounting retail strategy.

Advantages

Increases short term sales

Discounts are a quick, reliable, low risk way to drive sales in the short term. In fact, a store actively discounting is eight times more likely to make a sale. The perceived sense of urgency created by time limited/scarcity focused discounts encourages shoppers to snap up bargains.

Entices new customers


Discounting is particularly effective in attracting and converting new customers as it lowers the price barrier to entry. This is especially the case in eCommerce where the customer is unable to handle, smell or taste the product.

Increases AOV

Average order values (AOV) are driven higher by using BOGO (Buy One Get One) and buy-more-save-more discounting methods with BOGO being the most popular with customers.

Moves merchandise

Discounting moves old inventory quickly leaving room for fresh merchandise.

Rewards loyal customers

Rewarding loyal customers with exclusive discounts is a simple customer retention strategy. Returning customers spend three times more than once off shoppers driving sales and profitability.

Furthermore, personalised deals can be offered based on customers past purchases.


Disadvantages

Discount conditioning

Customers come to expect that the desired item will eventually go on sale and defer purchasing at full price.


Online shopping behaviours have been modified by the plethora of discount offers. Shoppers will consciously abandon shopping carts in order to trigger an abandoned cart discounted offer via email.

Brand dilution

Customers equate higher prices with higher value. They are concerned with quality as much as price and are happy to pay a fair/full price for goods that are deemed good quality.

Constantly discounting your product could dilute the brand and lower your products perceived value. Offering huge discounts can create suspicion on the part of the shopper that the deal is too good to be true!

Hence many brands are adopting a no (or seldom) discount strategy, focusing rather on the products quality, durability and worth rather than price. The general concept is that brands adopting a no discount strategy stand firm on their pricing i.e. the product is worth it’s standard price point. They may instead offer early bird promotions or free shipping as enticements.

The price of a product should never be reduced to lower than the cost of production irrespective of how urgently or how much merchandise needs to be moved. A quality item offered at less than it’s worth devalues your product.

Attracts bargain shoppers

Discounts can attract new customers but not necessarily loyal customers with LTV (Lifetime value). Bargain shoppers are often brand hoppers and are unlikely worth the spend in acquisition.

Reduces profit margins

The discount ultimately comes out of profit margins. Statistically, the business’s bottom line is reduced by some 6% for every 1% of discounting.

Sustainability

Constant discounting is unsustainable for brands, the environment and society. Discounting low price point items is compensated for by cutting corners. The fast fashion industry for example uses vast quantities of the earth's carbon which is damaging to the planet and employees of brands that heavily discount ultimately pay the price for cost-cutting in below living standard wages.


Large retailers are able, by virtue of their lower cost structure and higher volumes, to discount more frequently. Constant discounts are not sustainable for small businesses and an appropriate retail discounting strategy needs to be devised.

Price wars

Discounting creates price wars with competitors trying to undercut each others pricing strategies. Companies that lose a price war ultimately lose market share and profits. Price wars can lead to less competition and higher prices affecting consumers along with fewer choices for products and services.

Discounting undoubtably can be an effective strategy to increase short term sales, attract new customers, reward loyal customers, and move a lot of stagnant inventory quickly.


Your discount strategy will most likely lie on the spectrum between the no-discount strategy and the constantly discounting strategy.

Our barcodes work internationally. Should you require barcodes for your products, please visit our Buy page www.barcodeireland.ie/buy, or contact us on info@barcodeireland.ie or through the contact form on our website www.barcodeireland.ie/contact and let Barcode Ireland help your business.


Sources:


https://www.primaseller.com/blog/discounting-strategies-retail-full-guide/

https://www.shopify.co.za/retail/retail-discounts-with-profits

https://www.shopify.co.za/retail/no-discounting-strategy

https://www.wired.com/2010/10/pl-protoype-cocacola/

https://www.investopedia.com/financial-edge/0810/the-pros-and-cons-of-price-wars.aspx

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