Last week I shared information about a larger-sized brand that many of you shop from, illustrating the subject lines used in their email marketing campaigns over a multi-week period (click here).
In my Category Development projects (click here for pricing), I run models based on the percentage of sales generated by a customer on items selling below their historical average price point. The equation might look something like this:
- Future Gross Margin Dollars = $10.00 + 0.25*(Dollars Spent on Items At/Above Their Historical Average Price Point) + 0.20*(Dollars Spent on Items Below Their Historical Average Price Point).
Pretend you have a customer who spent $100 last year on items at/above their historical average price point: Future Gross Margin Dollars = $10.00 + 0.25*(100) = $35.
Pretend you have a customer who spent $100 last year on items below their historical average price point: Future Gross Margin Dollars = $10.00 + 0.20*($100) = $30.
Discount a lot this year, cost yourself $5 profit next year.
This is the reason why I used the "above" / "below" designation. Some brands discount everything. Well, this still means that a $49.99 item which usually sells at 30% off ($34.99) can be sold at 60% off ($19.99) meaning the $19.99 item is sold below the historical average price point.
I realize there are business situations that require significant discounting. I'm trying to help you avoid problems where customers become trained to expect the discount, costing you profit. I want you to be more profitable.
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