November 11, 2018

If You Thought 20% Off Was Bad ...

Remember our example from last week?

We were talking about 20% off, and we were discussing how you had to sell 83% more units to increase demand by about 46% to generate equal levels of profitability compared to selling at full price.

Of course, there aren't many of us who are out there selling at a paltry 20% off. And with Cyber Monday just around the corner and trade journalists screaming about discounts leading to "another record" event (which allows them to get clicks and to get paid by the vendors who support your CRM efforts to promote Cyber Monday discounts ... interesting, don't you think?) ... you're more likely to be closer to 40% off than 20% off.

In our example above, how many units do we need to sell if we bump things up to 40% off?

Hint - it's a lot of units.

We need to sell 11 times as many units, generating more than 6x as much demand, to achieve the same level of profitability.

In other words, one of three things (or all three things) are happening when you see a brand offering 40% off.
  1. The business is dying and nobody is buying the merchandise, leaving the company with no choice whatsoever but to discount heavily to move through inventory.
  2. The business has gross margins that are north of 70%, allowing for a cycle of fake markups and brisk discounts.
  3. The business employs professionals who do not understand math.
Keep 1/2/3 in mind when you look at discounts on Cyber Monday in a few weeks, ok?

Your job is to do what is right for your business, not what is right for other people.

Generate profit.

P.S.:  If you are frustrated with discounts about discussions (and my unsubs suggest you don't like it when I point out the math behind discounts), then read this from Stitch Fix ... about personalized communications (click here). There are so many ways to be successful ... ways that have nothing to do with discounting merchandise because customers aren't as responsive as you forecasted them to be. 

No comments:

Post a Comment

Note: Only a member of this blog may post a comment.


Here's what I noticed. On March 11, 2024, we were all sent home for a few months due to COVID. Folks will say the world changed on that ...