Discounts often appear as an attractive strategy to draw in more customers, but they can subtly erode your profit margins. By giving discounts, businesses essentially hand out money directly from their pockets to the customers. Understanding the implications of such practices and implementing strategies that maintain your profit margins is crucial.
Take, for instance, the salesperson who insists on lowering prices for an easier sale. A better question might be: How much of your own commission are you willing to sacrifice for that sale? Saying NO to needless discounts is essential.
The most detrimental discount is when it’s given to a customer who didn’t request it. Imagine agreeing to purchase a product, believing in its value, yet the salesperson reduces the price on their own initiative, taking money right from their employer’s pocket. Such actions are costly for the company but can be addressed by aligning the salesperson’s incentives with profitability.
Consider grocery stores and loyalty cards. These cards offer discounts to price-sensitive customers while allowing the store to maintain higher margins on regular purchases. However, if clerks lend these cards to non-members, it impacts profits negatively. Empowering clerks through performance bonuses for increasing profits without giving away discounts can curb this behaviour.
It may be time to address whether such unnecessary discounting is happening within your business. Engage in conversations with your sales team to ensure they aren’t unintentionally ‘handing out $20 bills’ without consent. Encouraging shared responsibility for discounts between the business and its employees could be a game-changer.
