The real cost of discounting

Posted by Bartercard on Oct 11, 2016 9:00:00 AM

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With so much competition and consumers looking at all options to bag a bargain, it’s no wonder people turn to the likes of GrabOne, TreatMe and Groupon for offers.  Why wouldn’t you?  But as a merchant have you worked out the real cost of discounting and the impact it has on your business? Daily deal websites charge a fee of approximately 15-20% of the sale price and stipulate that the offer presented must be at least 50% off the original sale price. 

It’s easy to think by offering a discount you’ll bring in the customers and they’ll leave happy because they haven’t paid full price, but discounts cost money.  

For example

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So by reducing your price by just 10% on a margin of 40%, you have to increase sales by 33% - that’s a big ask in a competitive market, especially when you add a fee onto that.

Discounting can also have an impact on your reputation as highlighted in a recent article, when an Auckland pizzeria refused to accept a customer’s GrabOne voucher.  All these aspects impact your bottom line.

Bartercard is not a discount service and while there are fees associated with being a member of the network, it’s a mere 7.5% in comparison.  Bartercard allows members to grow sales by 10% or more within the first 12 months of becoming a member and we can prove it (Dot Loves Data, 2011) – no discounts are required!

So do your sums.  Does it add up to offer discounts both from a profit and customer perspective?  Ask yourself this – are your customers loyal or are they just hunting for the next deal?  

As a merchant, are you wanting more customers or have excess capacity you want to utilise? Contact Bartercard now to discuss how we can help. 

 

Topics: growing your business, small business new zealand

 

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