16 Nov Rethinking Holiday Discounts
Black Friday, Small Business Saturday, Cyber Monday–the days following Thanksgiving all have their designations in the run-up to the December gift-giving season. For some shoppers, however, it’s December 26th that separates the skilled shoppers from the amateurs. That’s the day the Post-Holiday Sales begin, and the bargains are everywhere. Returning unwanted Christmas gifts and using those credits to purchase things they actually want, these bargain shoppers have been trained by the retail industry to wait for the sales that start right after the last bell is jingled.
As a wholesaler, should you follow the traditional sales calendar of the retail market and lower your prices at the end of the year? Maybe it’s good customer relations to offer something to your retailers around the holiday season…or maybe it trains them to wait for deep discounts and cuts into your sales volume for the rest of the year. You have to consider the pros and cons of offering your stockists special deals and decide what works best for you. Let’s look at some ways discounting can hurt your bottom line as well as help it.
Generating Good Will
Chances are, your retailers put in larger orders with you so that they would be well-supplied for their customers’ holiday shopping season. You might want to reward their loyalty with a special offer that reflects your gratitude for their repeat business. You could base it on volume–for every x units of product purchased, you add a bonus unit to their next order. Define your unit based on your product line: bag of yarn, bolt of cloth, bottle of wool-wash, set of craft tools, etc. Then, determine your reward unit: an additional quantity of the product that retailer reorders most often or their choice of a range of your products defined by you. Offering the choice gives you some valuable feedback about which products your retailers are confident about selling; giving them more of what they know they can sell is a winning strategy for both of you.
But what if that didn’t happen? Your retailers have been cautious all year with committing their shelf space and their dollars to your products and you have a lot of inventory just sitting around. It may not be a bad time to offer a sale to clear out products that you have on hand. If your retailers had a good holiday season, their cash flow may be encouraging them to buy more and you can take advantage of that. If it was slow for them, your lowered prices might be what they need to commit to another order.
You can also think of your inventory differently by putting it together in bundles of complementary products with ideas for how your retailers can market them together. If you can offer a pricing incentive on the bundled goods, it’s another way to reward your best customers.
If discounting your products is not a strategy you want to adopt, you can still offer value to your retailers: here, you might consider giving shipping and processing incentives for their next order. For example, rather than requiring a minimum quantity or dollar amount for reordering your products, you could waive the minimum for a specified time, so that they are encouraged to stock up in anticipation of holiday sales. Or, you could lower your minimum figure for free shipping for a specified period of time. The savings on shipping could spur your retailers to submit their restocking orders sooner rather than later.
Here’s one more idea for the holiday shopping season: you could ship some of your most popular products pre-wrapped as gifts, allowing retailers to promote them as an easy solution for gift-shoppers. These strategies add value to your products instead of lowering your prices, and putting a time limit on them gives your customers an incentive to complete their orders.
The Case Against Clearance
The attraction of discounting is the spike in volume that your lowered price brings, but it can be a vicious circle. If you cut prices to jazz your sales, you train your customers to wait for your discount and the steady stream of full-price sales trickles away. Eventually, your discounted price becomes your actual price. J.C. Penney’s ill-fated attempt to do away with coupons and institute everyday low pricing demonstrated this dynamic on a national retail level. Their customers were used to using coupons to purchase merchandise at 50% off, so the MSRP was meaningless, and the new everyday price was more than the old discounted price. Predictably, sales plummeted, as did Penney’s stock price – they simply could not break the years of discount expectations for which they had trained their customers.
How does this work for you as a supplier of specialized products to niche retailers? If you offer discounted prices to your retailers in order to encourage them to stock up for their own holiday sales, you could be cutting into your post-holiday profits. Or, if you wait until after the holidays to have a clearance sale, you are again teaching your customers to wait for your lowered prices. It’s hard to offset in sales volume the revenue you lose at a lower price point. Specialty items like craft tools and supplies have a long shelf-life, so run the you risk of having your retailers stock up at the discount price and put off their orders until the next sale. You may bring in new accounts, but they will think the discounted price you offered to entice them is the going price; it’s unlikely that they will react well to your “regular” prices in the future. Customers who chase the lowest price are willing to keep moving if that’s their main motivation.
There’s a perception cost to discounting, too: slashing your prices erodes the perceived value of your products. It also causes retailers to wonder why you can discount them so cheaply while still making a profit (which they will assume you are doing either way). Are they not as high quality? Did you find a different manufacturer? Is this really the same tool they have trusted for years?
If yours is an artisanal product such as hand-dyed yarn, discounting suggests that something is off with this particular batch: are they seconds? Is the yarn base generically wool/nylon and not merino/nylon? It’s safe to assume that the cost of your labor remains the same, so your materials might be questioned. Overall, discounted pricing may not be the best strategy for your brand.
Value, Not Price
In short, it is a better marketing strategy to find ways to add value to your full-priced products than it is to lower your prices. Whether it’s a volume-based bonus or an in-kind benefit like free shipping or gift-wrapping, offering your customers those little extras for a limited time can bring the sales you want with less risk to your profits. Anyone can compete on price – reward your customers with value and service instead.
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