Competing in the Material World

 Warning the subject matter of this article is adult in nature and may cause outburst of anger followed by less than appropriate language, parental discretion is advised in selecting who is near you when you read this.

With more than twenty years of Retail experiences I know first hand the emotions that well up inside me any time we get to talking about DISCOUNTING.

Who knew that an eleven-letter word would cause our ‘retail brain’ to translate it to just four? It is that dreaded word that is often heard after you have spent a lot of time educating, teaching and training a diver in a new discipline that in turns of course requires them to buy some gear, you know that whole “this is an equipment intensive sport,” presentation…I’ll save you the repetition. While a whole book could be written on the emotions created by the request for a discount the purpose of this article is to address how to handle it “as profitably as possible.”

Let’s take a look at the nuts and bolts of the process via this example. You make a $1,000 sale and your feeling pretty good about it until you hear some kind of an objection to the price.  By the way brokerage houses have spent a lot of money to find out that the magic number is five objections or negative replies before a sale is closed: good information to know when you are making a sale. But let’s assume you slept through that session of your sales training class, and you fold like a cheap suit. Your reply then by saying: “OH I GIVE…I’ll give you 20 percent OFF!” Wow it is even difficult to write that!

Let’s see the impact that has on your cash flow.

$1000 (Sale) – $500 (Cost of Goods Sold) = $500 (50 percent Gross Profit or 100 percent Mark Up. (By the way the terminology you use GP or MU tells me the side of the business you are in, but that is a topic for another time.)

So let’s see where we were. Oh yes the dreaded #*&^% DISCOUNT: $1000 (Sale) – $200 (DISCOUNT) = $800 (Adjusted Sale) – $500 (Cost of Goods Sold) = $300 Gross Profit.

Here is a different approach you may want to give some thought, have probably utilized from time to time but you need to make your “go to strategy” when a discount is required to close a sale or to compete in an increasingly competitive market place for consumer’s spending.

Let’s once again take a look at the same sale.

The difference this time is that while in the presentation process we have identified an item that the diver plans to also buy in the future… “But not right now.”

You make the $1000 (Sale) and the D word comes up. Instead of discounting the products already on the counter try this approach. Reach for the item that has been identified during the presentation as the “not right now” item and offer it as FREE bonus for making this purchase for example … that $200 warm water wetsuit!

Now the transaction would look something like this: $1000 (Sale) – $500 (Cost of Goods Sold) = $500 Gross Profit.

Now that FREE $200 suit. For the sake of this example, let’s view it as a keystone or X2 (Rabbit Retailing Product). Your cost on the suit is $100. Soooo…let’s recalculate our figures for this transaction. $1000 (Sale) – ($500 Cost of Goods Sold + $100 Suit at your cost) = $400 Gross Profit.  You have increased your Gross Profit from $300 to $400 or a 33 percent increase!

The customer has received a $200 suit for free (and your customer satisfaction rating has just soared through the roof), but most importantly you have traded a $100 (at cost) for $1000 in CASH FLOW, a 20 percent value in the eyes of the consumer but just 10 percent to you!

Please heed the following advice: Always focus on the give away “bonus” items with the highest Gross Profit (read lowest cost to you). Avoid any low Gross Profit items (read high cost to you), such as cylinders, travel and services (including education).

Of course there is no single perfect solution but maybe just maybe this article has caused you to think the process through and not be so “automatic” with price reductions and cause you to think “value added” for the consumer.  

Remember you have a whole lot invested to be able to buy at cost, do not be too quick to give up that advantage.

 

Footnote: We hope you found this article helpful. This is just one service from the SDI, TDI Business of Diving Team. Our group of dive business professionals can help in many more ways, including business assessment, customer satisfaction surveys and analysis, marketing counseling. Contact your area representative for complete details. And lookup Nestor at DEMA or at one of the many consumer shows we will be attending and say hello.

 

 

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