Columnists David Brown What’s discount really costing you?

What’s discount really costing you?

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All business owners need to maximize their time by concentrating on those things that give the greatest Return on Investment (ROI) for the time involved. This would seem logical, however frequently we will see a store owner focusing on minor issues, such as staff taking too long for lunch while ignoring the hundreds of dollars of discounts that are being given away each day.

Employee tardiness shouldn’t be ignored, but if you are to address the most important issues in a business, then looking at the amount of discount given away will be a far better use of time. Yet many store owners don’t know where to look when it comes to measuring this - after all, it is seldom reported separately in financial profit and loss accounts.

Producing a daily sales report from your system should show you the amount of discount you are giving away each day, and you can check these reports monthly and annually to see the cumulative effect. Once you realize you’re giving away the equivalent of an extra employee’s income you soon realize what these discount decisions are costing you!

One of the problems with discounting is that once you start with a customer it can be hard to stop. My colleague, Michael Dyer, recently came up with an analogy that summed it up brilliantly (as a new grandfather he could relate to it first hand!). He describes offering a discount as being very similar to picking up a crying new born baby. At first it is a short term solution to the problem – but the trouble is the baby, realizing it can get this response, will resort to crying each time to get what it wants – and having trained it to respond in this manner you have then effectively created a rod for your own back.

Discounting is the same – once a customer realizes you are open to negotiating (and how low you are prepared to go) they will expect it every time, and won’t understand (and can become angry) if you then aren’t consistent. However, the reality is that you can’t offer the same level of discount on every item.

Many jewelers tend to ignore discounts as they see it as an area over which they have little control – they feel uncomfortable and pressured by the customer and tend to lose control of the situation; however a few simple steps can be taken to regain control and see the leakage reduced substantially from where it was:

  1. If a customer asks for a discount - celebrate! It means they want to buy it. You have now moved beyond selling and into the area of negotiating. They are a step closer to buying and the game has moved in your favor.
  2. Don’t offer one! 50% of customers will accept it if you explain that this particular item can’t be reduced. This will half your discount immediately. Those who won’t accept it won’t walk straight out the door. You have an opportunity to deal with them as outlined below.
  3. Offer an alternative. Vouchers (which will cost you less and bring them back in-store) or discount on an alternative item with more margin, or one that you really want rid of.
  4. You’ll be left with the 10-20% of hard core bargain hunters by now. You don’t have to give in straight away! Many enjoy the challenge and will, in fact, be suspicious if you give in too easily. Offer a level less than they are asking and many will accept.
  5. You’re nearly there! If they are still insistent, give them what they want (within reason). It is better than losing the sale. But following this strategy and training your staff in this manner will cut your amount of discounts given away by hundreds of dollars EACH DAY!
  6. Discuss the daily discount with the staff. One store who let their staff know the amount being given away each day, and named the amount given away by the heaviest discounting staff member (but not their name – they knew who they were by seeing their own sales reports) saw an immediate drop in the willingness of staff to discount and a sizeable reduction in the amounts given away.

It is a law of nature that you will get that which you concentrate on the most - whether it is good or bad. Concentrate your thoughts on why the economy is bad and the economy will be bad. Concentrate your thoughts on finding a partner and you will find a partner.

Concentrate on reducing your discounts and see the results.

David Brown is President of the Edge Retail Academy, an organization devoted to the ongoing measurement and growth of jewelry store performance and profitability. For further information about the Academy’s management mentoring and industry benchmarking reports contact Carol Druan at This e-mail address is being protected from spambots. You need JavaScript enabled to view it or phone toll free 877-569-8657.

 
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