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03 July 2020

Quarantine: profitable discounts

To activate the business, attract customers and get rid of stock balances after quarantine, many companies immediately resort to promotions and discounts. But if you do these marketing activities impulsively, you can make a bunch of mistakes and even get to the loss. This can be prevented by following the marketing rules that were described by marketing strategist, owner of DEFENSE agency Yana Chumak.

Rule 1: The success of promotions and discounts is calculated based on changes in margin profit

A typical mistake is the decision to sell, based on the increase in revenue of the company. What does it mean? For example - you took goods at 400 UAH per unit, and sell at 700 UAH per unit. That is, by selling 100 units of goods, you have 30 000 UAH of marginal profit. And here you make a decision about the action and arrange a 30% sale. The price of the goods becomes 490 UAH, you sell goods not 100 pieces, but 150. The company's income grows from the planned 70,000 to 73,500, but the marginal profit falls by more than half. Therefore, before arranging a sale, it is necessary to calculate how it will affect the marginal profit, and not the company's income.

Rule 2: Don’t forget about advertising costs and bonuses to sellers

The discount on the product should be made only after a detailed analysis - when, in what month and in what volume this product is sold. Most likely, you will have to make an advertisement for a product or a stock (at least in a shop window or in social networks), promise bonuses to sellers for active sales. Which will also affect marginal profit, so you need to consider this in advance.

Rule 3: Using Pseudo-Throws

If it is economically unprofitable to make a sale, but your client is already used to stocks, it makes sense to resort to the so-called pseudo-discounts. That is, to make the appearance of reducing prices where they do not exist. For example, a change in the price tag: we set the old price, next to the new one, which is actually the real price without a discount. The buyer always wants to believe that he buys more for a lower price. And keep in mind that many people know about it, the cost of equipment and a number of goods can be easily checked online, so such moves can cost you a reputation. Resort to them only for unique goods or services, your own production. There is still a trick - to write something like: “Two goods for 100 hryvnias”. Note - there is no mention of a discount anywhere, but a person psychologically believes that these two products are cheaper together. What you get as a result is an increase in the total check (selling two goods instead of one) without any discount. You can also use the “bonuses” approach, when with each purchase the client receives a cashback on the card with the opportunity to buy goods in your store next time. This encourages the buyer to turn to your services again.

Rule 4: Explanation of the reason for the promotion

So that the client does not expect constant promotions and discounts from you, you must clearly explain why you suddenly decided to lower the price of this product. Such slogans are used: “Sale in connection with quarantine”, “Updating the assortment”, “We will hit with prices at Covid-19”, etc. If this is not done, the buyer can delay the purchase in anticipation of a discount.

Rule 5: Choosing a Product for a Promotion

A marketing tool like ABC and XYZ analysis will help you here. You must know exactly three criteria of the product: margin in hryvnia, percentage of margin, number of units sold. This will essentially explain to you which product belongs to which group.

Category A - goods with a high margin profit, have a high percentage of margin and are sold in large quantities (20% of the turnover)

Category B - goods with an average marginal profit, has an average percentage of margin and is sold in average quantity (30% of the turnover)

Category C - a product that sells poorly and makes no profit (50%)

Since the analysis is carried out not on one indicator, but immediately on three, we get various classifications of goods: AAA, ABC, BAC and others. Having such data, it will be very easy for you to make a decision on which product to make a discount and which not. AAA category products are selling well and delivering maximum profit, so you do not need to arrange a sale for them, but, for example, BAC category products, on the contrary, you need to push and advertise the buyer. In this case, it’s good to use such promotions: “Buy AAA goods and get BAC goods at a discount”.

The percentage of sales can be easily calculated using XYZ analysis - the stability of demand for this or another position. If the number of units of the goods sold ranges from 10%, then this is a product of category X, if sales drop from minimum to maximum, these are unpredictable goods of category Z.

Rule 6: Grouping Customers
You need to understand which customers are affected by discounts and which are not. Here RFM analysis will help you: the deal given, the frequency of the transaction and the profit that the client brought. If he already buys goods from you without discounts, then he doesn’t need a sale, but new buyers should be encouraged with stocks, but these measures should be limited to conditional “deadlines”.
Given all this and correctly assigning shares, you can quickly increase the marginal profit from 20% to 50% due to the internal resources of the company.