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When Profits Collapse, Don’t Turn to Discounting

Pier 1 Imports’ profit fell 26% as discounting cut into margins” is the headline of a June 19, 2014 DallasNews Business article. According to the article, CEO Smith isn’t sure whether this is a change in customer behavior or a temporary phenomenon. This chicken-and-egg question plagues business owners and CEOs in virtually every business in every industry. Is there an answer to this dilemma?

It’s not discounting
Of course there is, but discounting isn’t that answer. The natural tendency is lower prices when demand wanes. Unfortunately this knee-jerk reaction compounds the problem. Discounting sends the following messages:
  • We’re hungry for sales, i.e., things aren’t going well.
  • Even with this discount we’re making money—we were gouging you before.
  • Customers aren’t excited about our offerings.
  • Our competitors have leapfrogged us and we’re losing sales.
  • Our service is lacking.
All of these ‘wonderful’ messages give customers reasons to lose interest in your company’s offerings. That, in turn, leads to further discounts and the genesis of a downward spiral, a dizzying eddy, from which few return. In essence this discounting causes the very change in customer behavior that the business owner/CEO feared. So what’s the alternative?
It’s marketing
Instead of discounting, spruce up your marketing. Try some new ways to present your value so that customers get excited. What I like about Target’s ads are that they’re so upbeat and feature different aspects of their product lines. Being upbeat captures my attention. By mixing things up they keep me from getting bored.
But what if that doesn’t work? What if you make dramatic changes to your marketing and you still don’t generate the sales you’d like? What then?
Then you have to consider the possibility that you’re offering something people don’t want, not offering it in the way they want or offering it to the wrong market. At that point it’s time to do some market research. You can do this yourself. Simply ask people whom you’d expect to be great customers what’s missing from your offering? Find out what would make your offering attractive enough to get them to buy. Just don’t accept price as a reason, that’s a cop-out.
If this research indicates that what you’re offering can’t create enough interest to be viable, cut your losses and move on. More likely you’ll discover that what customers want already exists in your offering, you simply need to communicate that fact more clearly. If customers are having a difficult time quantifying the value your offering affords, do the math for them and include those calculations in your marketing messages.
I’ve been in the business world for over 40 years and I’ve lost count of the number of times that discounting has exacerbated a sales decline it was intended to avert. Conversely, I’ve seen sale declines turn around with amazing alacrity through more focused, value-oriented marketing messages. If you’re experiencing sales declines, revisit your marketing not your pricing. You’ll enjoy much greater success.
Not sure how to adjust your marketing messages, give me a call at 314-707-3771 and, together, we’ll develop those messages.
This article was originally published by Pricing for Profit
Published: November 7, 2014

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Dale Furtwengler

Dale Furtwengler helps businesses get higher prices regardless of what their competitors or the economy are doing.  His latest book, Pricing for Profit, was recently translated into Chinese.  Visit Dale’s Pricing for Profit blog where he highlights, often irreverently, the best and worst pricing/branding/marketing/sales strategies.

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