Here's what happens. Based on considerable customer analysis, we have a customer who like to buy full-price merchandise. Here's what this customer is expected to do, next year:
| Normal Scenario | Full-Price | Discounts | Grand Totals |
| Demand | $50.00 | $10.00 | $60.00 |
| Net Sales | $40.00 | $8.00 | $48.00 |
| Gross Margin | $20.00 | $4.00 | $24.00 |
| Less Mkt. Exp. | $7.00 | $2.50 | $9.50 |
| Less Pick/Pack/Ship | $4.60 | $0.92 | $5.52 |
| Variable Profit | $8.40 | $0.58 | $8.98 |
| Profit % of Net Sales | 21.0% | 7.3% | 18.7% |
Notice that this customer has a reasonable chance of taking advantage of one of our many discount schemes (lower prices, free shipping, %-off offers). If the customer takes advantage of an offer of this nature, here's what next year's activity looks like:
| Transition To Discounts | Full-Price | Discounts | Grand Totals |
| Demand | $25.00 | $45.00 | $70.00 |
| Net Sales | $20.00 | $36.00 | $56.00 |
| Gross Margin | $10.00 | $18.00 | $28.00 |
| Less Mkt. Exp. | $5.00 | $11.25 | $16.25 |
| Less Pick/Pack/Ship | $2.30 | $4.14 | $6.44 |
| Variable Profit | $2.70 | $2.61 | $5.31 |
| Profit % of Net Sales | 13.5% | 7.3% | 9.5% |
The customer is fundamentally different now. She actually spends more, $70 per year instead of $60 per year, but she's going to shop when you tickle her buying bone. And it costs money to tickle the buying bone of a loyal customer.
This style of analysis is essential in 2009. We need to see whether our thirst for clearning merchandise and "maintaining market share" in Fall 2008 have a detrimental impact on customer profitability in 2009.
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