Why shouldn't small businesses give discounts?

Discount - with discounts in the ruin

20 percent on everything! With this slogan, the DIY chain Praktiker wanted to lure customers into their stores for years. The end of the story is known: Praktiker had to file for bankruptcy.

As I said: 20 percent on everything! Such discounts not only ruin companies, but even entire industries. First the supermarkets ruined the retailers, then the mega-markets ruined the supermarkets. The West German textile industry was ruined decades ago by discounted offers from cheaper Western Europe and the GDR. And the East German textile companies, after reunification, from the East European ones. These in turn are now being ruined by the Asians.

But there are also positive examples of successful companies that do not get involved in discount battles. These are, for example, Trigema and Bruno Banani. These companies not only set trends, but are also very price-conscious and economical in granting discounts.

So how should sellers, salespeople or service providers respond to discounts? Here are some considerations.

Good reasons for discounts

There are a few good reasons for discounts and these are:

  • Volume discounts: Here, the lower trading margin is offset by the lower expenditure on acquisition, packaging and shipping.

  • Pick-up discounts: Here, the lower trading margin is offset by a reduction in additional services.

  • Cash discounts: Here, the lower trading margin is offset by the interest that arises from the money that was previously available, and also for the no longer applicable credit card costs that the merchant has to bear.

Bad reasons for discounts

Bad discount reasons are:

  • Friendship or regular customer discounts: Is someone who wants you to earn less than you deserve your friend? In that case, friends would mean ruin! Do you realize that? Do you get that? With Friends Like These, who needs enemies.

  • Quick decision-maker discounts: Discounts that are granted because the customer can decide quickly are a mess for any other customer who does not steal the seller's time with such a discussion.

  • Blackmail discounts: A customer threatens you not to buy from you if you don't give a discount. If you take up such a threat, you are showing him he can do anything to you. I am dead serious! Would you hold out your hand to a shark that is in a feeding frenzy? Probably not. And why? Because your hand means something to you, right? And your business means nothing to you? But? Then why would you want to do something so unreasonable?

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  1. Concessions on the seller side (II)
    - Approve bonuses
  2. - Approve services / services free of charge
    - Adjust delivery terms
  3. - Adjust payment terms
  4. Concessions on the seller side (I)
    - Offer special net prices
  5. - Agree to package prices
    - Offer discounts in kind

  6. Concessions on the customer side (III)

- Write a user report as an author / speaker

- Carry out joint presentations (at trade fairs, with potential new customers)

- Make active recommendations

Concessions on the customer side (II)

- Approve auditing / listing
- Approve technical alternatives / custom-made products
- Change order quantities and rhythm

Concessions on the customer side (I)
- Buy larger quantities

- Buy more products

- Accept call orders

Preparations in advance

The more negotiating power you have, the more flexible you can act in price negotiations. Therefore, consider in advance what concessions you could make and what the customer could offer you in return.

  1. A few examples.

  2. What do discounts cost?

  3. Our economy can only function if it is based on transparent calculations and if all market participants adhere to these calculations. Large discounts can only be given if they have been included in the prices beforehand.

  4. And whoever does that is cheating on their normal customers. Do you mean that the normal customers are stupid and do not notice the fraud? Then you're the fool. Because sooner or later these customers will also want the high discounts and then you have to give them to them because otherwise the customers will be gone. And then you slowly slide into ruin. Have lots of fun with it.

  5. A calculation example

  6. By the way, if you think that if you basically give a 20 percent discount with a 30 percent margin you only have to work 20 percent more, I have a surprise for you: You have to work twice as much! Do the math yourself. You can easily understand the calculation method. Sales tax is not taken into account.

  7. Example:

  8. Retail price: 100 euros, EK: 70 euros, margin: 30 euros

  9. Scenario: 20% discount

  10. New retail price: 100 euros - 20% = 80 euros

  11. New margin: 80 euros - 70 euros = 10 euros

  12. Result: 30 euro margin: 10 euro margin = 3 (i.e. necessary additional sales of 200 percent)

  13. 200 percent extra work for a one-time discount. And then the discount givers are wondering why their business is doing so badly. Although they even give customers a discount. No, dear business people, not although, but because. Because discounts are given, business is bad.

  14. Reading tip

  15. : Retail urgently needs a digital master plan

  16. Discount = psychological problem

  17. This is also a psychological problem with buyers. Why? Just think about it. The greedy part of the customers waits for the prices to fall even further, while the normal customer begins to doubt the quality of the goods. Something that is so heavily discounted cannot be worth anything.

  18. Correct? But if it's not worth the money, why would the customer want to buy it? Because it's cheap? But what are the benefits for the customer? Cheap is no customer benefit. Because if he buys something just because it's cheap, but he really can't use it, then he doesn't get any benefit from it. So it's worthless to him. Worthless because cheap. (tö)

  19. "But that's anything but a bargain!"

  20. "Ultimately, the price decides whether we get together!"

  21. "They are at least 20 percent more expensive than the competition!"

  22. "Now just unpack them all. Then tomorrow we can talk about cheap exhibits."

  23. "A friend paid maybe half for it."

  24. "What is the price if you leave out the" gold-plated "packaging?"

  25. "It's a discontinued model anyway."

  26. "You know as well as I do that after six months the price will drop by half."

  27. "Surely it is much cheaper used, right?"

  28. "You have a business - I have hundreds."

  29. "Now please try again with mental arithmetic."

  30. "Hello? I don't want to buy the whole store right away!"

  31. "Get the boss over for me!"

  32. "What has to happen for you to go down with the price?"

  33. "We'll talk about the maintenance contract tomorrow."

  34. "You are not serious now, are you?"

  35. "I've been shopping with you for so long."

  36. "You want to get a major order from us, don't you?"

  37. "I bet your colleague over there is a lot cheaper."

  38. "You probably don't know what it is, do you?"

  39. "And I always thought you had the best prices around."

  40. "I can go shopping at the pharmacy right away."

  41. "It's not my problem if you shop too dearly!"

  42. "Now don't come back to me with your moon prices!"

  43. "I've never paid for anything like that."

  44. "Why does it cost so much? It all comes from China anyway."

  45. "There must be an easy five percent discount on my sales with you!"

  46. "The price has to be tight if you want to stay in the race."

  47. "I only recommend those who give me a good price."

  48. "You want to do follow-up business with me, don't you?"

  49. "Now just tell me the project price for it."

  50. "For that you earn very well on everything else."

  51. "I've seen it much cheaper on the Internet!"