In the midst of pervasive discounting, how do small retail businesses craft discount programs, clearance sales, special events or other promotional strategies without doing permanent damage to the bottom line?

Small retailers should avoid rushing into top-to-bottom price cutting and focus first on thinking through a discount strategy.  Some discounts can come back to bite you over the longer term if you’re delivering goods or services at a substantial loss, and customers start to expect the lower prices as status quo.     

Offering discounts involves much more than sticking a “Sale” sign in the window. There’s a right way and wrong way to approach it…and promote it. For example, measuring results is crucial. Selling more but still losing money isn’t helping your business. Start with a plan and then stick to it.

Here are seven keys to creating a successful retail discount strategy:

Make discounts bottom-line focused 

Try to create discounts that are attractive enough to draw customers, but still make money for your business. Look at your product mix and look at your margins. Because if you don’t, that’s where you’re going to get burned. Carefully consider how low you can reasonably go. If what you sell involves a service component as well, hold that cost steady. Exclude items that you can’t afford to discount or that don’t fit your strategy.

Fit discounts to customer needs

Just because a discount sounds good to you doesn’t make it appealing to customers. For example, a “buy one get one free” offer may seem great at first. “But if your customer wouldn’t typically buy two or more at the same time, it’s not likely to work well.” Keep in mind not only what customers buy at your retail business, but how and when they buy it.

Measure results against goals

Retail discount strategies can have different goals, such as:

-Driving more visitors to your store

-Driving more visitors to your website

-Generating more leads for future follow-up

-Creating more in-store traffic with vouchers

-Promoting a new type of product

-Making the phone ring

Measure results against the goals you’ve chosen. If you opt for vouchers, for example, keep track of where customers found them, how they used them and what else they bought. Well-planned discounting typically (though not always) prompts customers to spend more.

Don’t get caught flat-footed

A home-run discount program could result in a flood of sales, so make sure you are prepared to handle the response. If you attract customers to your store but serve them poorly, you’re not helping your cause. Keep your sales staff completely informed about your discount strategy, including details they need about vouchers or offers so they can intelligently answer customer questions on the spot.

Treat discount buyers like any others

Going out of your way to make customers who buy at a discount feel like they are as valued as any others will go a long way to creating loyalty in the future.

Offer existing customers special deals

Part of a successful discount strategy often involves offering special deals for repeat customers. Many small retailers turn new customers into repeat customers through discount-based customer loyalty programs. Loyalty cards (buy 9 get the 10th one free), birthday discounts and referral rewards are examples.

Watch the legal side

Promoting discounts can be tricky; especially how you describe your store’s discount and on-sale offers. Be sure to clearly label which items are on sale and which aren’t. If your ads tout “Up to 50 percent off,” I suggest 10 percent of your items be offered at the highest discount.

Percentage increases in sales necessary to break even after a price cut

                                    Present Gross Profit Margin %

You decide to mark down the shoes by 20% for a sale (ie. you intend selling the shoes for $80).

According to the table with a Gross Margin of 40%, if you want to cut the price by 20%, the increase in sales necessary to break even after the price cut is 100%.

In order to still maintain your total Gross Profit dollars on that line of shoes you will have to increase your sales by 100%.

Debra Templar