Sales Promotions and Discounts

 


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Sales promotions are designed to have an immediate impact on sales for a predetermined (and limited) period of time. They are used to increase customer demand by stimulating the marketplace, (examples include: coupons, discounts and sales, contest, rebates, etc. ) and can be directed to the end user, sales staff or distributor (for example, retailers).

In this article I’ll discuss some of the more common types of consumer and trade (targeted to retailers and wholesalers) promotions… ones that are most suitable for small- and medium-sized businesses. A word of caution: Be careful how you use promotions. They can be wonderfully helpful as long as they’re not seen as gimmicky… this smacks of hucksterism and you don’t want to go there.

Also, promotions are “pricey" (no pun intended!)… That is, they focus on providing cost deals. Therefore, you must use them carefully and not allow price to ever become your chief differentiator. Use them, but use them wisely and intermittently.

Consumer Promotions: Discounts

Sales: The word ‘sale’ is so overused and abused that it’s become almost meaningless to consumers. Many companies use every imaginable occasion to advertise their latest, greatest price cuts in an attempt to lure the unwary consumer. This may work for a while but will hurt your business in the long run.

My advice is simple… if you’re going to have a sale make sure it’s legitimate and believable. If not, you risk damaging your credibility and reputation. For instance, a Mid-July Summer Sale is pointless. It’s best to give the reason for the sale and as many specifics as possible. The following is an example of an effective newspaper ad:

Wednesday’s Inventory Clearance Sale Everything is 50% Off!

We’ll be closed this Thursday… Why? Because it’s our annual inventory day. That means we have to count every single item in our store… And the way we figure it, the less there is to count, the sooner we’ll finish… and we know how much you’ll love taking advantage of our one-day prices!

Wednesday Only - Closed Thursday

Price Deal/Seasonal Discounts: Temporarily reducing the price during slow times or seasons. A good example of this discount is the ever-popular Happy Hour. Or how about a Maine beach rental in January?

Quantity: These are price cuts given for large buys. The reason behind them is to earn economies of scale and pass some (or all) of these savings onto customers. In some industries, buyer groups and co-ops have formed to take advantage of these discounts. There are two types:

1. Cumulative quantity discounts - Price reductions based on the amount bought over time.

2. Noncumulative quantity discounts- These are price discounts based on the quantity of a single order. The expectation is that they will encourage larger orders, thus reducing billing, order filling, shipping, and sales personnel expenses.

Prompt/Early Payment Discounts: Use these when cash flow is tight and speedy payments mean greater liquidity. Obviously, you can design these promotions to fit your specific needs. Just make sure the prompt payment is worth the discount. For example, let’s assume you invoice your customers once a month and agree that payments are due with 30 days. In this case, you might offer a 2% discount if they pay within 10 days.

Promotional Allowances: These are price decreases given to a retailer for performing some promotional activity. They include an ‘allowance’ (fixed sum of money) for creating and keeping a retail display or co-op advertising.

Trade-Ins: Traditionally associated with the auto industry, an effective trade-in promotion has many advantages. The buyer’s price is reduced by the amount offered for the trade-in, encouraging replacement sales without sacrificing perceived value.

And remember, “No one at 57 gets cosmetic deals. " :>) (David Gest)

Mary Eule specializes in helping small and medium-sized businesses get and keep profitable customers. Formerly a Fortune 500 marketing executive; founder of two successful small businesses and award-winning speaker, Ms. Eule is President of Strategic Marketing Advisors, LLC. and co-author of a new book, “Mandatory Marketing: Small Business Edition". She holds a master degree in marketing from Johns Hopkins University. Log onto http://www.StrategicMarketingAdvisors.com for free articles, newsletter and helpful tools, tips and templates.

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