The holidays are approaching, national unemployment is stuck at about 10% (and those in forced part time and underemployment jobs probably double that figure), and the predictions for holiday sales this year are not robust as record home foreclosures continue. Wal-Mart has already signaled its lack of confidence in seasonal sales on November 12 by offering free shipping through December 24. If you’re a smaller retailer, what should your pricing strategies be, given the iffy sales forecasts and the first strike “mega mart” discounting moves? clickfunnels pricing discount
Should You Discount in a Weak Economy?
There’s tremendous pressure on business owners to reduce prices to spur sales in times like these, especially during the end-of-year holiday season when many businesses move from the red into the black for the first time in their fiscal year.
Yet, with the anemic economic recovery slowing retail sales for so long, you may not even be close to where you should be financially at this point in the year and may feel you must make sales over the holidays almost at any price. That strategy may raise short term cash, but it may also very well force you to close your doors at the end of the year.
Let me illustrate with a conversation I had with a business owner who, at the behest of his accountant, had gotten into a pattern of holding monthly “cash flow” sales in order to generate enough revenue to pay his bills. It went something like this:
“You realize that continuing to have ‘cash flow’ sales means that you’re headed out of business, right?”
“No way! I’m paying my bills each month.”
“You may be paying your bills each month at the moment, but can you replace the inventory you’re selling?”
“Not all of it, but I can reorder the best sellers.”
“If your inventory is shrinking each month, what is the logical end when you have nothing left to sell and how long will it take you to get there?”
“Well, I haven’t thought that far ahead…”
For Emergency Use Only
While I can understand using this tactic once or twice in emergency situations, I was astonished to learn that he thought it was a good way to generate a predictable revenue stream, i.e., more money came in the door every time he had a sale. By holding cash flow sales at the end of each month, this business owner was actually training his customers to wait until the end of the month to make their routine purchases because they could count on saving 10-20%!
Further, he was slowly putting himself out of business by achieving his monthly target gross sales numbers on a margin markup less than what those numbers were based on.
Next time, I’ll illustrate this problem with a dollars and cents example, and I’ll share some tips on how to discount if you absolutely must. In the meantime, if you’re not a mega mart, don’t complete on their “low price leader” terms because doing so will put you out of business. Instead target the consumer who is less price-sensitive by focusing on areas you can excel in (and the mega marts can’t) with superior customer service, a pleasant shopping experience, service after the sale, and quality merchandise.