African Entrepreneur with Feyi Olunuga: Jumping On the Bandwagon For Black Friday Discounts?
We know Christmas is approaching when we start seeing the Black Friday adverts going up on the streets of Lagos. It started off being a one-day sales event that has evolved to as many as 14 days of offers for discounted products and services. As a small business in any industry, discounts on products is something we have all considered. Should you join the bandwagon for Black Friday and offer your products and services at rock bottom prices? The short answer is – No.
I walked into a store recently to buy some fabric, as I made my selection, an attendant was with me telling me the price and cutting the length I required for each selection. I selected 60 yards in total of different fabrics and was very happy with my selection; while she was at the till folding and packing my fabrics, I decided to do some research. I asked her if I could have a discount since I was buying up to 60 yards of fabric. She smiled and immediately offered me what came to a 20% discount off the price she had originally offered. As a customer, I was happy to be saving some money – but as a business consultant that works with businesses on their pricing strategy, I wondered if she realised how much of her profit margin she had parted with in a speedily considered discount.
Businesses all over the world offer discounts; many justifications have been given for offering discounts. Some of them are: It leads to a boost in sales; volume discounts make the customer buy more; it attracts new customers, and so on. This strategy as a short term and occasional tactic can work to boost sales; a majority of customers are attracted by discounts. There are some downsides to offering discounts: If you keep doing it, some customers will expect the discounts and will not buy your product without it. There are some of us that wait for Black Friday every year to make certain purchases. This works for retailers that are trying to get rid of old stock ahead of the New Year. As a small, you must consider: Is this the best strategy to achieve your sales objectives? Are there other approaches that will work better? Discounts should be considered as part of your pricing strategy; it should not be a hasty decision made at the point of sale. In my example above, I had already committed to the purchase she didn’t have to offer me a 20% discount – I will have made the purchase with or without the discount.
Some will argue that the discount on my fabrics was a good strategy because it made me happy and will ensure I come back in future – I beg to differ. There are other value-adding rewards that can be offered to customer. It varies from business to business but here are some examples. Using my experience above, if she had offered me a ‘gift’ that was worth 5% of what I spent on that transaction, I will have been just as delighted – ‘free’ beats discount any day! Can you think of something your customers will love; it can be free samples of your product or a complimentary accessory; for example a jewellery seller can offer jewellery boxes to customers that spend a certain amount on purchases. I have seen many businesses getting this wrong by offering pens, notepads, mugs etc. that do not attract the customer. The trick is to ensure the gift is useful and an attraction for your target customers. Other rewards that work are: Free next day delivery, Free gift wrapping – you can even throw in a free Christmas card.
Offering price discount can sometimes erode the value of your brand in the eyes of your customers. Yes, we appreciate the money it saves us, but we can’t help but think – if she could take off 20% so easily, could her products be overpriced? You should discount with a reason: ‘Summer Sale – Old stock must go’ and it should be part of your marketing communication. A new season sale that offers discounts on lines from the previous season works because the customer understands that there is a reason for the price slash. This should not be confused with a ‘Christmas Sale’ for example where prices are slashed simply because it’s Christmas – or that’s how it is communicated. You should consider offering Christmas packages instead; for example if you have 5 items in a Christmas package that usually retail for N5000 each, you can choose to offer them in a package for N20,000 as opposed to offering a 20% discount on each individual item. Once it is in a package, it is a different product.
Discounts can work when they are thought through and part of a strategy that includes an implementation that doesn’t harm your brand or your bottom line. There are some instances where outright discounts absolutely work; one is to lock in future sales; for example you usually get a discount when you choose an annual subscription instead of a monthly subscription at the gym or from your cable TV provider. The benefit to the business is apparent; the consumer is locked in for a fixed period – that is guaranteed income. Another is a discount to encourage a certain payment method; some businesses offer discounts when you pay in cash because it saves the cost of the charges they will pay on a card transaction. As you decide what promotion to offer, ensure it is thought through, beneficial to your customer and also good for your business.
Happy Thanksgiving and Happy Black Friday Shopping ☺