Let's Make A Deal
I had to fire Monty Hall. He was making way too many deals! But, for the past few weeks, I’ve thought I might have to hire him all over again. No matter how much of a discount we have been giving, our customers think they deserve more. “After all,” they say, “everyone is offering big discounts because the economy is so bad. I think you should, too!” In fact, one of our customers insisted I call the manufacturer to ask for a further discount before we were finally able to strike a deal.
In the past, we priced our products based on our cost (after all early buy or reorder discounts) with a keystone markup. We don’t add freight to our cost before coming to our selling price unless we are dealing with container goods. This means most of the furniture on our floor is priced anywhere from 20% to 48% less than the MSRP. We do offer a small discount for payments by check or cash rather than credit card. Other than that, everyone pays the same price.
We mark all of our sets with a pricing placard that not only has the manufacturer’s name, style, warranty, and selling points; it also shows the MSRP and our selling price along with the discount expressed as a percentage. Even though the placards all show our price is lower than the MSRP, they don’t look like or have the immediacy of our specialized sale tags. This has become a problem because clients see the discount, realize it is available to everyone and isn’t so special, and want more off.
At times, we send out a mailer to new pool owners offering them an additional 5% discount. Because of economic conditions, I have authorized my sales staff to extend this same discount to any buyer if they feel it will close the sale. Sometimes this has worked and sometimes not so much. Ten percent seems to be the magic number for the client but it is profit loser for me!
This has happened so often that this week we remarked all of the furniture in our store. Instead of our normal placards, we are now using higher impact “Sale” tags. In addition, after reviewing our cost on many products, I cut the price on some goods; mainly those carried over from 2008. To put it bluntly, our prices are as low or lower than most of my brick and mortar peers. If I lower them more, I won’t be covering my costs and overhead and will lose money.
Some stores use a different pricing model just so they can handle the customer who wants a discount. They mark everything at the MSRP and then have plenty of room to discount when closing the sale. You know the routine. The salesman says, “Well, since we have become such good friends in the 15 minutes we have spent together; I am going to offer you a (insert number here) discount. But it is only good if you purchase today!” I have two problems with that: First, the whole process seems so “used car salesman” to me. Second, and more importantly, MSRP’s are unrealistically high and I think customers would be so scared off they wouldn’t even allow us to get to the price negotiation part.
I suppose another way is to leave prices off of everything. That gives the salesman even more leeway when trying to close a deal. However, when I go into a store where nothing has a price tag on it, I feel I am about to be gypped.
Regardless of how any of us handle this, I think we are going to see plenty of haggling in the future. Funny enough, the customers who are asking for the discounts are the ones who have high paying, secure jobs. For the most part, they are good business people who want to be sure they are getting the best pricing they can. But many hagglers used to be Fashionistas and Fashionistas are out. Instead, Recessionistas are in! And just like the Fashionista who had bragging rights when she got a designer dress as an exclusive, the Recessionista is looking for bragging rights, too. However, the Recessionista gets bragging rights by getting the biggest discount possible.
Yours in confused retailing, Bruce
A day after posting this blog, I was visited by Steve Bennett and Harold Hudson of Summer Classics. I asked if they had any thoughts on how to handle the surge in demand for "recession" discounts. Steve gave me some insightful input that I thought I would share with you. Instead of waiting till the end of the sale, Steve believes the question of discounts should be discussed and defused at the very beginning of my interaction with a customer. Towards that end, he suggested, when we first greet a customer tell them you have just gone through the store lowering your prices because of the recession. You did this because you want them to be assured that they are getting the lowest possible pricing in these tough times. Sometimes the simplest of solutions are the most elegant!
Yours in confused retailing, Bruce