Discounting not a cultural norm after all
Sam Dantzler, Columnist
October 16, 2013
Filed under Columns
So I just came back from California, where I was hit with an interesting question during one of my trainings. A student (and very enthusiastic employee) asked, “When did the idea of asking for discounts become cultural in our society?”
One of two answers came to me immediately, but I held them back as I truly absorbed the question. You see a major problem with the question is that it’s grounded on an absolute belief that discounting HAS become cultural. It hasn’t.
Years ago the massive influx of big box retailers fueled a do-it-yourself shopping experience, and customers began to focus more on pricing than the experience they were getting in that big box. It isn’t as if the powersports industry made a conscious decision to move away from value-based selling and said, “OK, let’s all just sell on low margins now and hope for higher volume like the big box stores.”
No, quite the contrary. Retailers (and employees) got lazy, mirroring the big box strategies, therefore fielding questions about products and reactively clerking the customers coming through the door. The culture of discounting in a store ISN’T cultural … but it can BECOME cultural through your staff, your training, and your “show.”
With so little of the industry actually training people on how to proactively sell the customers and with customers accustomed to price shopping from their Kmart and Wal-Mart experiences, it becomes easier to just drop process and move product. But transactions don’t necessarily translate to profits, so you need to know who you are as a retailer.
The fact of the matter is, many retail strategies work, and stores like Brooks Brothers, Kohl’s, Nordstrom and Wal-Mart are committed to ONLY ONE of them. They don’t simply post a price, then adjust it based on their customer’s reactions. You can’t post a premium price without giving a premium experience and expect to hold margins. You also can’t work with current, fresh inventory and expect to survive with a culture of discounting. Who are you? What is your identity? Pick one, and stick with it.
Assuming your identity is that of a premium, non-discounting retailer, I offer you these considerations:
1. Are you worth it? When I hear that a dealer lost a deal because the guy down the road was $500 cheaper, I’m reminded of a 1980-something Lemco Letter where Uncle Ed penned a column titled, “So You’ve Got a Discounter?” Newsflash! EVERYONE has a discounter nearby, but EVERYONE isn’t losing deals to that discounter for “fill in the blank” dollar amount. The fact of the matter is, your customer can get “that” product (Arai XD helmet, Sportster, Vance & Hines exhaust) at hundreds of places in the country including online. The ONLY thing that separates you from the other places out there is … YOU! So I ask again, are you worth it? No, you didn’t lose the deal because of the discount. You lost it because the customer doesn’t think your sales/service (aka “show”) is worth his extra hard-earned income.
Did that hurt? It was meant to. Let me demonstrate with an everyday example: 90 percent of Americans finance these toys, so if you lost the deal for $500 to the guy down the road, that $500 is less than $10/month (based on a five-year loan). You lost the sale because your show isn’t worth $10/month. And if you can’t honestly tell your boss that your show is worth $10/month, then you are in the wrong business.
2. Price of admission. When adding up advertising, payroll and direct expenses, the average dealer in the country is paying between $100-$200 for every customer just to walk through their door.
If you were going to go out and spend $100-$200 on dinner, what are your expectations of that dinner? Better be damn good, right? So the dealer principal has paid the price of admission for the customer to see your damn good show. Not your mediocre, question-answering, semi-present, ‘How can I help you?’ show. That show sucks. That show is in reruns on Nickelodeon.
Can you actually verbalize your “damn good show” to the tune of a $200 price of admission? If not, you’ve got work to do. When I do training and speaking engagements, I’ve always called them “Enter-trainment,” 51 percent content and 49 percent entertainment. The content is out there in other places, but the manner of delivery is all mine. It’s my damn good show that I don’t discount. How about you?
Yes, there are times that you can give the most amazing show/experience in the world, and people will still ask for a discount. Then what? First off, recognize that this is in the minority of situations, as most will graciously pay retail if the show is worth it. However, there are two fundamental strategies that should be used to overcome this. Remember, these are to be used AFTER the full show has been given, and as a last resort to actually discounting the fresh, current inventory.
Rebate program — Rebate programs are everywhere, as they are such a better option than discounting for your customers. Hotels, airlines and even frozen yogurt stores are getting in on the action. Spend money today and earn freebies to come back to use later. Rebate programs trump discounts for three major reasons.
1) A 10-percent discount on a $100 item is $10 in real dollars that you didn’t recognize today. With a 10-percent rebate instead, you recognize today’s extra $10, and give the customer $6 Monopoly money (assumes a $10 coupon and a 40 percent margin in your store) to use later.
2) To get that customer back in the store, where the discount program doesn’t encourage repeat business.
3) Most people will come in and up-sell themselves, knowing the first $10 is “on the house.” The math actually works out such that a 20 percent rebate costs the dealership less than a 10 percent discount. More importantly, it’s much cooler to carry the motorcycle dealership’s card in my wallet over that of the local Fro-Yo yogurt store!
Have a discount or clearance area — This strategy works well to direct the customer to products that need to go away, and AWAY from the inventory that you don’t want to discount. The idea is never to discount your fresh inventory, but have ample alternatives to refer customers to who may be looking for a “deal.”
“Oh you’re looking for a smoking deal? Well let me show you these jackets, then. This is the best deal in the dealership!” The customer’s ego will not let him buy the cheaper one at the discount as opposed to the one he really wants at retail.
Years ago I went whitewater rafting down the Chattooga River in North Carolina. We were coming up to five class-V rapids in a row at the end of our six-hour trip, and the woman next to me asked the guide “What should I do if I fall out of the boat in there.” The guide looked at her and said simply, “Well, just don’t do that.”
It was good advice. At the end of the day, the best way to overcome a customer asking for a discount is to not have a customer ask for a discount. Create such a relationship with the customer that asking for a discount would be embarrassing or outlandish based on the experience they just received. The better the experience, the less chance a discount conversation will ever come up. Embracing the notion that you sell an escape and NOT a tangible good refocuses conversations on people, not things.
Sam Dantzler is the founder of Sam’s Powersports Garage, a membership website dedicated to best practices and all-staff training. He can be reached at email@example.com.