## February 12, 2023

### 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.

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