The Bad Effects of Discounts on Retailers’ Profits

Howdy !

Heavy discounts used to be offered by retailers in the first and last quarters of the year, or from Black Friday until early January.

New research revealed, however, that the desire to stay ahead of the competition, coupled with the need to meet consumers’ expectation of regular sales, drove many businesses to change the norm.   

They resorted to put products on sale frequently, which seems to be doing them more harm than good.

53% of 500 British retailers surveyed by eCommerce payments provider Klarna said the ‘always-on’ nature of discounts is taking a toll on their profits. In fact, 11% of them claimed that discounting cost them over £25,000 in 2017.

Klarna’s report further revealed that eCommerce retailers are the main casualties of heavy discounting, as 56% of retailers said majority of their discounted transactions took place online.

How to avoid habitual sales

Merchants sell their goods at lower prices to dispatch old or excess stock, but there is a better way of doing it.

Luke Griffiths, managing director at Klarna UK, had this to say:

“Instead of discounting, merchants would do well to focus on perfecting the customer journey – from an inspirational browsing experience through to a seamless checkout phase, with multiple payment options and one-click repeat purchase options.”

Besides, who said sales aren’t stressful to consumers? Although 18% of consumers polled admitted that they will only shop if there’s a sale, 28% of them said sales are too stressful so they avoid them altogether.

Here’s what majority of people who shop online and in-store think:

  • 45% of them are more likely to shop if they were sent a personalised offer
  • 25% are less likely to shop with a retailer who always has sales on
  • 38% believe constant sales make a brand look cheap and unfashionable

Klarna also found 36% of customers would rather buy items at regular prices than those that are marked down if they can pay once they have received the goods and decided which ones to keep.

You see, running a sale may be a contributing factor to the success of your business but is not the heart of it.

Discounting is an old practice which triggers consumers to spend more money, but the problem is that it’s now rampant and putting profits on the line. Rather than selling for half the price and earning less than your expected profit margin, employ tried-and-tested methods that will benefit you and your customers.

Here’s a suggestion from Andy Mulcahy, strategy and insight director at IMRG:

“Getting the basics right – selling items that genuinely appeal to the target demographic, optimising areas of the experience, providing leading service – remains the most effective method for increasing sales in a way that is far less reliant on discounting.”

What are your thoughts on price slashing and how often do you do it? We hope to hear from you in the comments below.

 

To your continued success,

Dave & Matt

 

  

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