Managing Price Discounting

A leading website defines Discounts as Percentage decrement in the gross scathe given by a seller to a buyer who pays inwardly a set period of time. Cash give the sacks atomic number 18 given to hack the length of time the seller must wait to collect the essence due. Cash fires argon offered to buyers in most industries, including media buyers.A common business parlance for a cash discount is 2/10, net/30, meaning that a 2% discount is offered if the amount due is paid within 10 old age otherwise 100% of the amount due is payable in 30 days. For framework, if the amount due is $100, the buyer may pay $98 within 10 days or $100 within 30 days.Discounting is becoming a popular mean to attract the clients. Simon Hathaway, managing director of retail specia inclining Saatchi & Saatchi X, says discounting has become part of the business model for any(prenominal) retailers, especially those in the furnishing sector. He believes that much of this is driven by retailers picki ngs advantage of consumers ignorance of the toll of many reapings. If you asked 20 people the scathe of a pint of milk, you would get 20 different answers, he says.Mike Watkins, senior private instructor of retail services at A.C. Nielsen, says the potential rewards of tempting shoppers with discounting argon huge. Consumers are hooked on promotions, he says. On average, about 80% of UK shoppers are looking for toll promotions thats the highest in Europe. Low costs are now expected. Merchants a lot advertise various types of price discounts in attempts to affect favorably the price-related evaluations and shop intentions of consumers.Why does price discounting occur why is it so prevalent?Kevin Cancy, chairman of Copernicus, a study marketing research and consulting firm found that only 5 to 35 percent of the customers are price naked. People with higher(prenominal) income and higher product involvement are ready to pay the price for features, customer service, quality , added convenience and the brand name. Most companies will adjust their list price and give discounts and allowance for early payment, volume purchases and off- inure buying.It is nearly-accepted fact that short- contain promotion leads to an addition in the sales. Although the size of the discount determines absolute or relative prices, an important additional type of consumer behavior relating to the processing of breeding concerning the size of the discount, per se, may have to be addressed before predictions concerning the trespass of size of discount goat be made. Be looks this there are many other objectives that a firm seeks to achieve with discounts. Some of them are charge up with competition a sale or a discount offer is comparablely to be perceived and accepted as a good value when the advertiser is perceived as price competitive (Fry and McDougall, 1974 Biswas and Blair, 1991). Occupying more shelf space in the retail showrooms Keeping good relations with the deal er often causes discounts. This is more evident in the cases when the dealer is strong. Either he has strong brand value in the region or is a bulge out buyer of the product.To promote a unexampled innovationTo clear the decks for new stocks ( change of flavour/fashion)Price promotions showing literal increase in SalesAttracting new customers to the brand which may result in increased brand switching.Also, Research has indicated that a sale or a discount offer is likely to be perceived and accepted as a good value when the advertiser is perceived as price competitive. One crusade for such make relating to store price kitchen range may be the nature of attri hardlyions for the price discount made by the consumers. For example, for a low-price characterisation store, consumers may be more likely to reconstruct merchant-related attri providedions that indicate meeting competitors prices or passing on savings from bulk purchases from manufacturers than for a high-price image st ore.Differences may also be observed in product-related attributions between the stores. Because many consumers believe there is a positive affinity between price and product quality (Rao and Monroe, 1989 Lichtenstein and Burton, 1989), a price discount on merchandise at a store that has a low-price image may sometimes be perceived as related to something ostracise about the products (such as out-of-date models or inferior quality).The reveal reason often sighted by marketers is that it is d champion to is done to invite new users to try the product. If these people appreciate the product they may switch to your brand.Does it fake well to achieve the objectives that are typically set for it?Though the prices discounts do spike up the drives temporarily it is really rare cases that it actually spikes the demand in the long run. But there is a negative side to it, likeLong run price promotions make consumers more sensitive in both loyal and non-loyal segments. They also train no n-loyal segments to seek price discounts, thereby making them more sensitive to price promotion (Mela, Gupta and Lehmann, 1997).Discounting can be a useful tool if the company can draw in some concessions in return, like an extended contract of bulk order.Short run price discounts also cause the loyal customers towards bulk buying. This means increase in customer inventories and thus may result in the reduction of subsequent buying.Research suggests that the price promotion more often then non is unsuccessful in brand switching. The reasons for that are very evident, perhaps one of them can be the price perception of the customer is set to the discounted price of the product.For a brand positioned as an aspiration brand the discounts can be suicidal. This may lead more people to buy the brand but it may result in the loss of loyal customers who constitute the major chunk of buyers in the normal course.The price discounts works well in a few cases likeDiscounts offered in the time of needDiscounts towards the end of season achieve their objective of clearing the decks for the new stocksAre there some objectives it is well suited for and others it is not suited for?There is lots of confusion on the impact of price discounts, Mela, Gupta and Lehmann in their paper The long term effects of Promotion and Advertising on consumer brand choice state that companies like Colgate Palmolive Ralston, P&G have curtailed the price based promotions but there are some like Heinz who continue to adhere to it.In a research M. P. MARTI NEZ-RUIZ, A. MOLLA -DESCALS, M. A. GO MEZ-BORJA & J. L. ROJO-A LVAREZ (May 2006) found that for The high-priced brands of the storable category that promotional discounts had a bigger impact during the first base days of the promotional period, whereas no special pattern was detected in the low-priced brands of this category.There are some places where the discounts are very well suited for likeDiscounts to people tour in lean season at r esorts. This brings extends the brand to people who otherwise may not use it.In an attempt to divert competition attendance from the innovations. A price discount leads competition to fight the discount and in the mean time you can position your new innovation.Though there is no research evidence to justify these observationsHow can a product music director or a brand manager plan a discounting schema that does not harm brand value? Some guidelines can be suggested for the retailer to set adequate promotional discounts periods.Objective of Discounts The Product manager should very clearly announce the objective of the discounts. Generally discounts offered for pumping the sagging sales should be avoided. A clear originator and the time frame to achieve that motive should be clear.Timing of the Discount Timing of the discounts is very important. A end of season sale may not have that bad an impact on the brand as a sale in the peak season. A grocery store offering a discount in t he socio-economic class of drought is bound to have more loyal customers that any other store around the neighborhood.Limit the Duration In the first place, promotional periods for the high-priced brands of the storable category should not exceed 10 days otherwise the promotion profitability could be reduced. In addition to this, discount levels should not exceed a certain magnitude, which depends on the considered brand.Add Value Added service An even better strategy than discounting your price is to add value to your goods or services such as free installation, maintenance training, and longer product warranties. For example, I cant commence my price but I am issue to give you consulting which will save you the same amount of money, had you received the lower price. As Mr. Kotler explained, there are some companies that are extremely well-educated about their customers business, and able to point out to their customer ways in which they can save money. Baxter, a infirmary sup plies company, provides a good example of adding value.They give credit points to hospitals who buy their products just like airlines do. These points can be redeemed for a cash rebate or for consulting days. Baxter has 12 key consulting teams, each with a different focus. One team, for example, will help the hospital improve its information management system while another team will help it better manage its wastes, elaborated Mr. Kotler. As it turns out, the consulting is so useful that the points are better used for consulting days.Avoid Frequent Discounts Frequent discounts aptitude influence the consumers reference price points and so produce a pause out effect.Evaluate other options like bundling instead of price discounts roll up leads to repackaging the products along with other products. Even in this case the frequency and distance should be kept in mind.Cited ReferencesM. P. MARTI NEZ-RUIZ, A. MOLLA -DESCALS, M. A. GO MEZ-BORJA & J. L. ROJO-A LVAREZ (May 2006) Asses sing the Impact of fleeting Retail Price Discounts Intervals Using SVM Semi-parametric Regression Int. Rev. of Retail, Distribution and Consumer Research Vol. 16, zero(prenominal) 2, 181 197DONALD R. LICHTENSTEIN, ABHIJIT BISWAS, KATHERINE FRACCASTORO (1994) The Role of Attributions in Consumer Perceptions of Retail Advertisements Promoting Price Discounts merchandise Letters 52, (1994) 131-140, Kluwer Academic Publishers Carf Mela, Gupta Sunil, Lehmann Donald (May 1997) The long Term Impact of Promotion and Advertising on Consumer Brand Choice. Journal of Marketing Research 34 (May) p248-261 Quilter, James (March 2007) Marketing, p20-20, Kotler Philip (2003), Marketing Management Pearson Education p-489-490