Deep discounts are everywhere. As a consumer, I love it. As a former sales rep, I get it. As a pricing specialist, I hate it.
Here is a real-life story to illustrate how companies are leaving a lot of money on the table with aggressive discounting:
Yesterday I bought my favorite ground coffee at a local supermarket at a price that was too good to believe. Retail was $10.99. The 3-day-only (limit 1) promoted price was $4.99. I typically pay $9.19 for a bigger size at the club store where I do my weekly shopping. Since I didn’t think the club size was twice as big as the supermarket size, I figured $4.99 was a fantastic bargain and worthy of an extra shopping trip. And the story gets better.
When I got to the store, I found many of the $4.99 ground coffee cans had a $1.50 coupon sticker (the official industry term is IRC – Instant Redeemable Coupon). With the IRC, I paid $3.49 for a big can of ground coffee or 68% off regular retail.
Again, as a consumer, I love it. I recruited my family members to make multiple trips with me. Now my whole pantry is full of $3.49 cans of coffee that will last me for at least 6 months.
As a former sales rep, I get it.Your buyer wanted a hot deal and was willing to accept a razor-thin margin. You had some trade dollars left in your budget and could use a hot deal to make your Q2 number.
As a pricing specialist, I hate it. Let’s take a look at the math more closely. I normally pay $9.19 for a club size of my favorite ground coffee, which translates to 2.8 cents per cup. During this hot deal, I paid 1.5 cents per cup. In other words, roughly half of my willingness-to-pay was left on the table.
Is this happening to your business?
In part II of the “68% off” story, I will share tips and lessons learned from other B2C companies that have started to address this challenge. Stay tuned.
In the meantime, it’s time for me to make another trip to buy my favorite $3.49 can of ground coffee.