October 20, 2022

Discounts and Promotions

Here's one of my favorite quotes ... yes, I like things that I say.

  • "Discounts and Promotions are taxes placed upon brands for being unremarkable.

People are about to start yelling at me, and for good reason. Too many readers think that running a business is all about identifying discounts and promotions that "tickle the buying bone of today's ever-changing consumer" or whatever word-salad the vendors craft in defense of discounts and promotions.

Nobody tosses out discounts/promotions unless business is not meeting expectations. It was fascinating to see all of the full-price shopping that happened during the pandemic when customers wanted/needed what you were selling. You didn't need to promote anything, because customers wanted/needed what you sold.

Think of it this way. You have an item that sells for $50, with a cost of goods sold of $20. Every time you sell an item, you generate $30 of gross margin. Nice job!

But then either business doesn't meet expectations or the marketer grows an ego to the point where "something" has to be done from a marketing standpoint or the inventory team bought too many widgets or the "competition" priced the item lower. Whatever the reason, somebody decides that it is time to sell the item at 30% off.
  • $50 * 0.70 = $35.
  • Cost of Goods Sold = $20.
  • Gross Margin Dollars = $15.

In order for this item to be equally profitable, you now have to sell two items whereas you used to only need to sell one item.

That $15 is the tax you pay for being unremarkable. It's punitive. The tax consumes half ... half ... of your profit.

This is the point in the argument where some of you yell at me about the fact that you are always running promotions so my argument is useless, you'll never sell at full price, you view Macy's as an example of a well-run business and I'm the problem, not you. That argument is also problematic. 

Back in the stone ages at Eddie Bauer, I distinctly recall our CEO yelling at a room of marketers to "do something". He complained that we had promotions in 33 of 52 weeks of the year, and he didn't want the calendar "polluted" with discounts (hint - it was already fully polluted ... like squirting fruit punch Miio into a glass of water). We were already running too many discounts/promotions, we were the problem. End of story. If we stopped running promotions, sales decreased (though via our testing profit increased ... and nobody liked that reality). If we didn't add discount/promotions, the top-line didn't grow. We were trapped by the very strategy we employed years earlier. We were done.

There are clever ways to implement discounts and promotions. 30% off of everything is NOT clever. 40% off of a key product this week only (while not discounting anything else) "could" work.

Let's not be lazy. Be a marketer. Be clever. Be creative.

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