Category Development and Discounting

Let's take a look at discounting within the framework of our Category Development work. Here's the table we've been reviewing for a week now (yeah, just one table).

The final column in this table is "% Sold Below Av.". Here, we calculate the percentage of sales within a category that are sold below the historical average price point of an item.

For instance, pretend that an item sells for $50. The brand discounts frequently. Say that 10 customers purchase one of this item each, at the following prices.

• $50.
• $50.
• $45.
• $40.
• $40.
• $35.
• $35.
• $35.
• $30.
• $25.

In this case, the item sells for an average of $38.50.

Anytime this item sells for less than $38.50, the item is selling below the historical average price point for this item.

In other words, anytime the item sold for $35, $30, or $25, the item sold below the historical average price point for this item.

Now go back to the table. What do you observe at a Category level, especially for Categories 6/7/10/11?

• 41.5% of Category 6 sales are below the historical average price point.
• 55.7% of Category 7 sales are below the historical average price point.
• 46.4% of Category 10 sales are below the historical average price point.
• 45.0% of Category 11 sales are below the historical average price point.

Yeah, this brand discounts the living daylights out of products. It's "who" this brand is.

Later, I will run models that determine if incessant discounting helps or hurts future profit. In most of my projects, incessant discounting is negatively correlated with future profitability.