Discounts and sales promotions always catch a buyer's eye and can help distributors attract interest for a new product, renew interest from former customers, or clear out inventory of a discontinued product. However, it's important they are used strategically. A discount or promotional offer launched without a strategic intent could not only fail to achieve its goal, but it could also lower the perception of your business, reduce pricing power, and crimp margins.
Here are five strategic outcomes that a discount or promotional offer should align with:
1. Bring them in the door: Businesses can offer discounts to incentivize customers to act quickly. This strategy encourages potential clients to experience the company’s products and services. For instance, on your e-commerce platform, consider running a promotion targeting specific customer segments for a limited time, offering enticing deals like free shipping or discounts. This encourages them to make a purchase, allowing them to experience firsthand the quality of your products and services.
2. Prepayment or high-volume pricing: Marketing and Sales want the flexibility and autonomy to address customer needs and mandates. They need authority to offer customers discounts for advance payment or high-volume orders. Many distributors excel at seizing opportunities to boost sales through bulk orders. However, the challenge lies not only in securing such contracts but also in ensuring that sales representatives have the freedom to offer discounts within a certain range while safeguarding profit margins.
3. Anticipate seasonal supply demand: Distributors can leverage their supply-chain resilience and price strategies as a competitive advantage. By strategically raising prices when customer orders are high, companies can maximize the value of their inventory and drive up demand in low market cycles. This was particularly relevant for many distributors in 2023 due to supply disruptions. The key challenge lies in effectively planning and executing such tactics without jeopardizing relationships with key customers or being perceived as opportunistic by the marketplace.
4. Appeal to customer loyalty: Providers use loyalty programs to offer discounts to customers. Loyalty programs will retain repeat customers. But customers are quick to review products and services. So, repeat customers from another data set are worth listening to and adjusting prices.
It's important to listen to feedback from repeat customers across various datasets and adjust prices as needed. A prime illustration of this is Lowe's and Home Depot's clear programs tailored for professionals, offering volume discounts for repetitive purchases. Despite professionals' tendency to shop around, these programs effectively retain their loyalty.
5. Clean house: Sharp discounting will help eliminate old inventory, making room for new product lines and shifting focus to higher-value items. Ideally, distributors should establish processes around product lifecycle management and utilize analytics tools to forecast inventory accumulation due to decreased demand. By adjusting prices accordingly, they can efficiently manage excess inventory. Ultimately, the goal is to optimize Gross Margin Return on Investment (GMROI) to ensure profitability.
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- Incentivizing Customer Actions: Discover how to use discounts to attract new customers and encourage quick decision-making.
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- Advanced Analytics for Forecasting: Gain insight into how advanced predictive analytics can help anticipate market trends, enabling more proactive and strategic discounting decisions.
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