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David Brown: Stop Being Mr. Nice Guy with Discounts

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Giving 10 percent off here or there may win you more sales, but do the math and you’ll discover you aren’t covering your costs.

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[h3]Stop Being Mr. Nice Guy with Discounts[/h3]

[dropcap cap=D]id you know that by giving your “good customers” a 10-percent discretionary discount, you make absolutely no profit out of the sale? You don’t even cover costs![/dropcap]

“Discretionary” is when the salesperson chooses to give the customer a discount as opposed to a planned promotion or agreed aged-inventory discounts.

In Table 1, left, you can see where the money goes based on a $1,000 item with a 100-percent markup (keystone) sold at the full retail price.

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Now compare that with the example based on the same $1,000 item sold at a 10-percent discount to a “good customer.” (Table 2.)

Zero profit. In fact, not only is there no profit, but you now need to make up a $30 shortfall! Everyone gets paid except you. The staff, the landlord, the vendor, the advertising agency, the bank — you even paid the customer $100!

Are you shocked?

So how can you change that when “everyone asks for a discount nowadays”? Well, “everyone” is what retail salespeople keep telling me. Every time the subject of discounting comes up in one of our seminars it evokes lively discussion.

The key to remember is that when a customer asks for a discount, selling skills get replaced by negotiating skills. The customer has already made the decision to buy, so it’s just a matter of how much he ends up paying for it.

[componentheading]NEGOTIATION 101[/componentheading]

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For those who ask for a discount, it can be effective to ask, “What did you have in mind?” You’ll be surprised how well this works and how reasonable customers are.

Always negotiate some more. “I doubt I can do it for that, but let me see what I can do for you.” Go out the back, have some coffee, pretend to be looking at the price and then come back with your counter-offer. “As I thought, I can’t do it for $X. The best I can do it for is $Y. Make sure the amount is unusual. For example, if the starting price was $895, offer it to them for $854.70. This isn’t a percentage reduction or just $50 off — it looks like you’ve carefully considered it.

If they make a counter-offer, negotiate some more. Say something like, “I can’t reduce the price any further but what I can do is offer you the extended warranty.”

Remember, these people like to haggle, and if you give in too easily or too quickly they will be disappointed. They will still feel there was more they could have gotten.

[componentheading]ACTION STEPS[/componentheading]

• Show your staff the impact a 10-percent discount has on profitability  
• Try this exercise with your staff and help them find ways to deal with it  
• Monitor discounts every day and ask why.  
• Watch your profits grow.

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David Brown is president of the Edge Retail Academy, an organization devoted to the ongoing measurement and growth of jewelry store performance and profitability. You can contact him at [email protected]

[span class=note]This story is from the November 2008 edition of INSTORE[/span]

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