Monday, May 2, 2016

Discount Your Use of Useless Discounting

Unless your promotional discount on items ends up increasing sales revenues, that discount has been wasted. Researchers at University of Bochum find one way in which this occurs is when the shopper may be responsive to a discount, but not to the amount of the discount. In the 537 transactions the researchers studied, the discount offered by an automobile salesman resulting in a successful sale averaged $616 less when the salesperson made it a point to sense the shopper’s sensitivity to the amount of the discount.
     How does this apply if a promotional discount is announced on shelf tags to all shoppers, not negotiated with each individual shopper? Part of the answer to that question is that giving shoppers an unexpected cents-off coupon for the purchase of one product in a store increases overall spending at that store. Customers who are grateful to you will buy more from you on that trip and on future trips, and nothing brings out gratitude in a customer more than finding a surprisingly low price. But, again, the amount of the discount is often less important than the fact that there is a discount.
     Researchers at Eindhoven University of Technology in the Netherlands and Katholieke Universiteit Leuven in Belgium analyzed cross-category effects in closer detail. They found that with product categories purchased occasionally or purchased more for convenience than necessity, a promotional discount is especially likely to lead to not only purchase of that item, but also purchase of items in other categories. With items the shopper came into the store specifically intending to buy—what the researchers called “destination categories”—the effect was not as pronounced.
     Therefore, you’ll get more from your promotional discounts by offering them on categories purchased occasionally or mostly for convenience. Still, the discounts on regular necessities do count. In a set of studies at University of Arizona and Arizona State University, participants were asked to assume they had to buy an essential item at a store because they were completely out at home, and they also could buy other items while at the store. For one experimental condition, the essential item was priced 80% lower than usual.
     This surprise discount resulted in about an 8% increase in the quantities purchased of other items available at the store. Realize this could much more than make up for the lower profit on the single item sold at the 80% discount.

For your profitability: Sell Well: What Really Moves Your Shoppers

Click below for more: 
Regulate Negotiating with Regular Customers
Have Unannounced Discounts on Common Purchases
Effect Spillover Buys via Surprise Specials
Discount Partner Items Simultaneously or Not?
Sharpen Your Price Image

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