Industry Insights: The Art and Science of Discounting
Seasonal discounts and markdowns are not a new business tactic. In the current economic climate, changing consumer behaviours have shown that discounts are needed for businesses to stimulate sales and keep cash flowing. How can businesses be smart about discounting and pricing strategies so they could elevate value for their products and brands?
Carla Penn-Kahn, Co-founder and CEO of Profit Peak shares her expert insights:
Can businesses still make a profit while giving discounts?
Yes, businesses can still make a profit while offering discounts, but it requires a more strategic approach. Instead of blanket sitewide discounts, many retailers are now tailoring their offers based on product sell-through, stock availability, and popularity. This allows them to protect margins by avoiding deep discounts on best-sellers and instead focusing on slower-moving stock.
Additionally, retailers are being more selective about the channels through which they offer discounts to ensure customer acquisition costs align with margins. Some are even launching sales early or targeting existing customers with exclusive offers before going public.
Ultimately, the key is to balance short-term sales with long-term customer value. Businesses should track the lifetime value of customers acquired during discount periods to ensure that they’re not just attracting one-time buyers but cultivating loyal, repeat customers who shop without relying on discounts.
What are some ways that retailers can be smart about their discounting strategies?
Retailers can be smart about their discounting strategies by targeting discounts based on product performance, stock levels, and popularity, rather than offering blanket sitewide reductions. Focusing on specific channels ensures that customer acquisition costs align with margins, while early promotions and exclusive offers to loyal customers help capture spend and build brand awareness.
It’s also vital to analyse post-sale data to assess the lifetime value of customers acquired during the period, ensuring discounts attract repeat buyers, not just one-time shoppers. Additionally, modelling the impact of discounting on contribution profit is crucial. Retailers should focus on whether discounts drive incremental value and profitability, rather than just boosting top-line revenue. By doing so, they can ensure their discounting strategies contribute to sustainable growth and long-term business success.
Carla Penn-Kahn, Co-founder and CEO – Profit Peak
How can discounting be turned into a way to enhance customer loyalty?
Discounting, on its own, does not build customer loyalty. In fact, it can encourage a learned behaviour where customers expect discounts rather than fostering true brand loyalty. Discounting should be seen as an incentive tool to drive brand awareness and attract new customers, rather than as a long-term strategy for retention.
Loyalty is built on the foundation of high-quality products, strong brand engagement, and creating a sense of community. Customers are more likely to stay loyal to a brand that consistently delivers value beyond just price—through exceptional customer service, meaningful interactions, and a brand ethos they can connect with. By focusing on these elements, retailers can cultivate lasting relationships with customers, who will return not because of discounts, but because they believe in the brand and its offerings.
Besides discounting, what are other methods that businesses can better manage cashflow, inventory, and profit?
Discounting should be a last resort for businesses managing cash flow, inventory, and profit. It’s often a symptom of poor decision-making and a reaction to deeper issues. Businesses can avoid this by:
- Understanding Your Customer: Knowing customer preferences helps ensure the right products are stocked, minimising the risk of excess inventory and over-discounting.
- Product Selection and Margin Management: Investing in products with solid profit margins allows businesses to optimise profitability without relying on discounts.
- Optimising Inventory Levels: Effective inventory management ensures enough stock to meet demand, without overstocking, reducing the need for clearance discounts.
- Demand Forecasting: Using data to predict demand helps businesses plan better, minimising stockouts and excess inventory, which in turn aids cash flow management.
By focusing on these strategies, businesses can maintain healthy cash flow, optimise inventory, and protect profits without frequently resorting to discounts.
Relevant links:
www.profitpeak.io
https://www.linkedin.com/in/carla-penn-kahn-0384b0a/
https://www.linkedin.com/company/profit-peak-io/
Carla’s insights into discounting are a must for retailers looking to balance profitability with customer satisfaction.
Be sure to attend the Retail Therapy seminar at Reed Gift Fairs Upper Level (L4) from 15 - 18 February to dive deeper into the discussion. Check out Carla’s session here.