Managing Price Discounting

A leading website defines Discounts as Percentage reduction in the gross judge exposen by a seller to a buyer who pays within a array period of time. Cash discounts ar haven to shorten the length of time the seller must face to collect the amount imputable. Cash discounts atomic number 18 offered to buyers in most industries, including media buyers.A commonplace business phrase for a cash discount is 2/10, simoleons/30, weting that a 2% discount is offered if the amount due is salaried within 10 days other than carbon% of the amount due is payable in 30 days. For example, if the amount due is $100, the buyer whitethorn pay $98 within 10 days or $100 within 30 days.Discounting is becoming a popular mean to tempt the customers. Simon Hathaway, managing director of sell sp areist Saatchi & Saatchi X, says discounting has become part of the business sit around for m whatsoever retailers, especially those in the furnishing sector. He believes that much of this is driven b y retailers taking advantage of consumers ignorance of the worth of many products. If you asked 20 people the cost of a pint of milk, you would get 20 different answers, he says.Mike Watkins, sr. manager of retail go at A.C. Nielsen, says the potential rewards of tempting shoppers with discounting are huge. Consumers are hooked on advancements, he says. On average, almost 80% of UK shoppers are looking for monetary value promotions thats the highest in Europe. Low prices are straightaway expected. Merchants often advertise various types of price discounts in attempts to affect favourably the price- link evaluations and shopping intentions of consumers.Why does price discounting occur why is it so prevalent?Kevin Cancy, head of Copernicus, a major marketing research and consulting firm found that muchover 5 to 35 percent of the customers are price sensitive. People with higher(prenominal) income and higher product involvement are ready to pay the price for features, cus tomer service, quality , added convenience and the scrape name. Most companies testament arrange their list price and give discounts and allowance for early payment, volume purchases and off-season buying.It is comfortably- au thereforetic particular that short- end point promotion leads to an increase in the exchanges. Although the size of the discount determines irresponsible or relative prices, an important additional type of consumer behavior relating to the bear on of information concerning the size of the discount, per se, may have to be addressed before predictions concerning the impact of size of discount bottom of the inning be do. Besides this at that place are many other objectives that a firm strains to achieve with discounts. some(a)(prenominal) of them areKeeping up with competition a sale or a discount offer is belike to be perceived and current as a good value when the advertiser is perceived as price competitive (Fry and McDougall, 1974 Biswas and B lair, 1991). Occupying more shelf space in the retail showrooms Keeping good relations with the dealer often causes discounts. This is more ostensible in the cases when the dealer is strong. Either he has strong smear value in the region or is a multitude buyer of the product.To advertize a new innovationTo clear the decks for new stocks ( change of season/fashion) footing promotions viewing tangible increase in SalesAttracting new customers to the brand which may burden in increased brand tack togethering.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 reason for such effects relating to store price image may be the nature of attri furtherions for the price discount made by the consumers. For example, for a low-price image store, consumers may be more likely to make merchant-related attributions that indicate meeting competitors prices or passing on savings from bulk purchases from manufacturers than for a high-price image store.Differences may also be discover in product-related attributions between the stores. Because many consumers believe there is a prescribed relationship 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 minus ab turn up the products (such as out-of-date models or inferior quality).The blusher reason often sighted by marketers is that it is done to is done to welcome new users to try the product. If these people appreciate the product they may switch to your brand.Does it work well to achieve the objectives that are typically set for it?though the prices discounts do spike up the demands temporarily it is very rare cases that it real spikes the demand in the broad run. But there is a negative side to it, likeLong run price promotions make cons umers more sensitive in both loyal and non-loyal segments. They also train non-loyal segments to seek price discounts, thereby making them more sensitive to price promotion (Mela, Gupta and Lehmann, 1997).Discounting brush off be a useful tool if the company gouge gain some concessions in return, like an ext completeed contract of bulk order.Short run price discounts also cause the loyal customers towards bulk buying. This factor 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, perchance 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 become the major chunk of buyers in the no rmal 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 mental 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 bow 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 days of the promotional period, whereas no special pattern was detected in the low-priced brands of this category.There are some places where t he discounts are very well suited for likeDiscounts to people visiting in lean season at resorts. This brings extends the brand to people who otherwise may not use it.In an attempt to divert competition attention 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 manager or a brand manager plan a discounting strategy 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 clear announce the objective of the discounts. Generally discounts offered for pumping the sagging sales should be avoided. A clear motive 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 b rand as a sale in the peak season. A marketplace store offering a discount in the year of drouth 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 Services An correct 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 lower my price but I am going 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 knowledgeable about their customers business, and able to point out to their custom er ways in which they can save money. Baxter, a hospital supplies 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 deliver for a cash rebate or for consulting days. Baxter has 12 key consulting teams, to each one with a different focus. One team, for example, will help the hospital make better 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 might work the consumers reference price points and so produce a wear out effect.Evaluate other options like bundling instead of price discounts Bundling leads to repackaging the products along with other products. Even in this case the frequency and duration 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) Assessing the Impact of Temporary Retail Price Discounts Intervals Using SVM Semi-parametric Regression Int. Rev. of Retail, Distribution and Consumer Research Vol. 16, No. 2, 181 197DONALD R. LICHTENSTEIN, ABHIJIT BISWAS, KATHERINE FRACCASTORO (1994) The Role of Attributions in Consumer Perceptions of Retail Advertisements Promoting Price Discounts Marketing 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. diary of Marketing Research 34 (May) p248-261 Quilter, James (March 2007) Marketing, p20-20, Kotler Philip (2003), Marketing Management Pearson pedagogy p-489-490