December 04, 2022

Longer-Term Impact of Discounting Today

Now that you have recovered from the magic, the pageantry, the thrill of Cyber Monday, you might want to take a look at how you changed your business going forward ... well, more specifically, how you altered future customer behavior.

I posted this information on LinkedIn last week ... when I post it on Twitter I get the typical professional with 22,493 tweets and 94 followers telling me I'm a moron ... but at least on LinkedIn folks understand the nuances of business. I ran a model last week, predicting future spend on full-priced items and on discounted items, based on purchase history of full price and discounted items.

Assume we have a customer who spent $100 on full-priced items in the past, and spends $100 on Cyber Monday on full priced merchandise. In the next twelve months, the customer will spend:

  • $62.50 on full-priced items.
  • $13.60 on discounted/promoted items.
  • $76.10 total spend.
  • $45.32 future gross margin dollars (59.6%).

Now let's assume that the customer who spent $100 on full-priced items in the past spends $100 on Cyber Monday on discounted/promoted items. In the next twelve months, the customer will spend:
  • $52.80 on full-priced items.
  • $20.50 on discounted/promoted items.
  • $73.30 total spend.
  • $42.02 future gross margin dollars (57.3%).

In the future, the customer bends future dollars away from full-priced items, toward discounted/promoted items. The customer generates less profit (gross margin dollars) in the future because of behavior in the past.

Your mileage will vary?

What does the data look like for a customer with $0 full-price and $200 discounted/promoted?
  • $43.10 on full-priced items.
  • $27.40 on discounted/promoted items.
  • $70.50 total spend.
  • $38.72 future gross margin dollars (54.9%).

The more you discount/promote today, the more you bend future behavior toward discounting/promotions.

Now, I get it ... there are times you have to run promotions, or want to run promotions, or you have to liquidate merchandise.

But you don't have to do what trade journalists demand of you (40% off on Cyber Monday or 50% off on Black Friday). You just don't have to follow the industry narrative.

Do what is right for your customer, and for your business.

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