On Discounts, continued

[Rob Markoff]

Prior topic was getting too long to scroll through.........

In the "olden days" there were basically two philosophies- Price Integrity (our prices are good/fair/etc. every day so we don't put things on sale)- and the evil empire who "brought a bad name to our industry and cheapened it through daily/regular sales (discounts) and made non-discounters look like they were ripping off the public."

As my collegues have so aptly stated, times change and we must change with the times.

My only contribution to this forum is from a "nuts and bolts" approach. You must understand that it is the "perception of a discount" that is fundamental here.

Too often when "things get bad" the first thing retailers do is "cut their prices" which, in my many years of writing and educating, I have found to be too low to begin with as they were based on suggested pricing from a moulding company, or lately, from the default settings of a computer software program.

If you are going to offer a "discount," the resulting sale/earnings must still be great enough for you to make a living wage.

That means you cannot take a pricing structure that was/is established with the intent of (hopefully) making a profit and cut those prices. Where does that leave you? Those that want to play the discount game must establish a new pricing structure that anticipates giving a discount and is adjusted accordingly.

Too often I hear/see framers say that they have to cut their prices because a "big box" is offering a discount. I only ask you to consider, "discount off of what?"

I also had someone in one of my classes tell me that "he fools interior designers" by marking his prices up 20% and then gives them a 20% discount. It doesn't work that way! Do the math, to get back to the needed 100%, you need to mark something up 125% to take a 20% discount and get back to the anticipated number.

[DB]

Rob, you cut right to the heart of the topic.

[Bob Carter]

Rob makes a classic mistake when he mentions "cutting prices" as a way to discount/promote.

That is just flat wrong, as he points out. But he suggests that you should have your regular prices reflect that ability to promote,and that is not entirely correct, either.

Open any ad by any retailer and you will see "Chrome plated widgets 40% off". Bet the farm that Acme Retail Co did not buy widgets at regular cost and offer them at 40%. But, Acme probably asked Apex Widget Co to participate in a promotion and got some type of cost reduction. Apex was probably most willing to sell more and they probably had some type of program in place to do exactly that.

But, "Wait" you say, "I can't call LJ to give me a break to run their product on sale".

Then, I say "Have you asked"? or "How about show specials" or how about rebate opportunities or how about looking to other vendors or how about buying a few selective Boxes of mouldings at 40-50% off your list price?

The key is to never take a regular cost item and reduce it below your minimal CoG parameters.

The key is to take a reduced cost item,protect your margins and run an effective promotion

Reduce your selling price without a corresponding reduction in cost?

What are you,a Picture Framer or something?

[Rob Markoff]

Well Bob, I guess we are finally going to get into a "Bob and Rob" after all.

Man, you try to be helpful..........OF COURSE I needed to mention cutting prices as a promotional methodology because the practice is pervasive. I did not suggest that I advocated it. How is my mentioning it a classic mistake?

When the marketing expert (salesperson) from Val Pak comes to a framer's door and suggests that he/she runs a coupon, what is the first thing that they suggest that is offered? A DISCOUNT, and on what? CUSTOM FRAMING.

So Mr. or Ms. Joe/Jane Average Framer decide that they will offer 15% off, and the marketing expert from Val Pak says, "to be successful, you have to offer a bigger discount than that." So Mr. or Ms. Framer relents and ups the discount to 25%.

What is it that they are discounting? My experience from interviews with participants in my classes tells me that it is their standard, everyday retail pricing that NEVER WAS ESTABLISHED in anticipation of ever offering ANY kind of discount.

My comment/suggestion was only offered to those who have walked down or are considering this slipery slope.

I never advocated the practice, but I am sure that there are those who might consider it or who have run a discount coupon or offer and it it NOT ON A SPECIFIC ITEM or PRODUCT that was purchased favorably.

They just CUT THEIR PRICES by running a coupon or ad. I was only attempting to raise their level of awareness by making them understand that there is no way to make money by reducing EVERYDAY prices charged unless the prices are established in anticipation of the discount.

[EllenAtHowards]

And right you both are, as usual. Now if only everyone pays attention...

[Jerry Ervin]

Rob makes a great point. That is exactly the scenario. So not only will you lose profit from the reduced retail price, you gave Val Pac $300 to $500 per month to do it.

You really need to adjust pre-discount price to offset.

My biggest fear is that my non-coupon regular customers would notice a sudden jump in retail price.

I had a few rounds of this a couple of years ago. I more than doubled my volume and made about the same profit.

I think thats called the 'busy fool syndrome'.

[Bob Carter]

Rob-We are in agreement with everything you said. But my fear is that many will see this avenue as mentioned by previous posts as taking a "global 10% discount to allow for discounting" or Jerry's comment that his "non-coupon regular customers would notice a sudden jump" in his prices

Tis is my fear-that we go for the quick fix, silver bullet type answer. If it were only so simple as to raise the regular price to offer a discount.

We have to learn to buy to promote; to protect margins while still offering true value. The one thing we never address is that we never seem to understand where our current pricing structure "fits" in our own markets.

When I mentioned the "classic mistake", I was referring to the typical response that I am certain most will take from your post. Jerry is a bright person, but even he acknowledges adjusting his regular prices to offset discounts.

And, I am sure we both agree that there are better ways to accomplish the goal of creating a favorable price impression

[gemsmom]

Isn't the bottom line you have to BUY the goods at a discount in order to OFFER a discount on the goods?

Wouldn't this also mean that you cannot, or should not, discount labor, since labor is a fixed cost? Unless, that is, you or your employees are willing to work for less $$$ per hour during a sale. Which could also mean you would be working for free, since I highly doubt the employees would work at a reduced rate.

[HB]

I suggest there may be a few reasons to offer a discount:

- to boost work during a rare slow period in order to keep staff busy
- to create a new awareness for a product or attract a differrent type of customer
- to test a product or advertising method
- to get rid of competition (may God forbid)
- to reduce high inventory (to fix your error/s)
- to meet sales budgets (esp when the manager isn't the owner?!)
- to increase sales volume with the anticapation that through higher volume your shops efficiency can increase enough to offset the lower prices
- to pass on savings to the customer (as Pam indicates - after making a good purchase)

I know that the last point is used the most, as well as the fact that even that argument should be used sparingly - if you make a great deal on buying something, why should you lower your prices if you are still competitive, have enough work, and don't particularly need to grow your sales

[Terry Scidmore CPF]

I recently had a "sale" to try to move old merchandise, and tied it into our community neighborhood jubilee days celebration. I had big sale signs out front, ads in the local newspaper, coupon offer, etc.

The funny thing is that the "sale" generated no business. It was busy, but people came in just because they were going to anyway. No one asked if what they were buying was on sale. They had no interest in it at all.

I learned a good lesson - one that Bob, Rob , and others have stated many times - there is an art to "sales". They have all commented that you have to buy well, price with the sale in mind, have the "sale item" be appropriate for what the consumer will be interested in and what the marketplace suggests is the regular price, and promote it properly.

[Jim Miller]

Originally posted by Pamela DeSimone, CPF:
...Wouldn't this also mean that you cannot, or should not, discount labor, since labor is a fixed cost? Unless, that is, you or your employees are willing to work for less $$$ per hour during a sale...You're so right, Pamela. Nor can we get a break on rent, utilities, or taxes. Your comments remind me of a customer who insisted that we could afford to give her a better discount. I was annoyed.

The exact numbers escape my fading memory of that day so long ago, but let's say our coupon offered 10% off and she wanted 30% off. I brought two employees out of the back room and introduced them to Ms. Customer. Then I turned to them and said something like:

"Ms. Soandso wants a bigger discount. All of our other costs are fixed, so it will have to come out of our labor cost. Which of you is willing to work on her framing for 30% less than your usual pay?"

Needless to say, Ms. Soandso was mortified and both employees thought I was joking. I lost that sale and -- just that once -- it was worth it.

[Bob Carter]

You know what is great about this thread is that we come so far from just afew years ago. Then, the mere mention of promoting would have received fierce emotional negative responses.

It is so refreshing to discuss this intelligently with legitimate differences of opinion

[Warren Tucker]

Fixed expenses such as labor, taxes, rent, etc are relevant only if a shop is running at near 100% capacity. Then why would you have a sale in the first place? We never do, but our strategy from the beginning has been to buy at high discounts (rarely less than 30% off list)and pass the savings on to our customers. We don't advertise, either, or have a mailing list. Fast service, very good prices, outstanding quality, wide varity of services, these are factors we identified early that we thought would make us successful. While we don't have sales, we're always open to a large order and we'll cut prices to get one. It's amazing to what extent offering a good product at a good price (one that's as low as possible) succeeds in the absence of specials, promotions, and whatever else the competition offers in an effort to win our customers. Bob, why not make everything you offer a smart sell as a result of smart buying? Warren

[Jay H]

Good to see you again Warren. You should come around more often.

[Bob Carter]

Warren-If I was in your market, I would do exactly as you suggest. Heck, if it works well for ol' Sam, it must work for Warren.

There is a lot to be said for "Everyday Low Prices". And you quite correctly have turned a Buying Advantage into a Tremendous Selling Advantage.

In essence, you have a de facto EveryDay Sale Price

In our market, we have many, many external forces that force us to take "extraordinary" measures.

We have a gazillion Michael's, Aaron Bros, JoAnne's and CraftMarts-each glomming up media space.

Then couple that negative starting point to fighting the old "they are in a mall so they must be expensive" mentality

We have elected to come out with guns a-blazing to fight these most pernicious misconceptions.

Warren, my friend, we agree on most everything but style. I am a little more aggressive than you, but we feel in this marketplace, it's just what the Dr. ordered

But, if I was in a market like yours, my concept would be a lot closer to yours.

And that proves beyond any doubt that thereare many, many ways to become successful if you start with the concept that you have to buy right.

The rest is just so much window dressing

[OzDave]

More sales does not necessarily equate to better profits. If discounting, we must ensure it will create better profits, either now or in the future.

[Matoaka]

Just to clarify Rob's scenario about the guy who fools designers by marking up an extra 20% to cover his 20% discount (because it took me forever to figure this out on my own)...

Instead of increasing your normal selling price by 120%, thinking that you're compensating for a 20% discount, DIVIDE that selling price by 80% (the difference between 100% and your discount - in this case 20%). That will get you the real selling price you want to start with to cover your discount.

Just a rudimentary tip for mathematically-challenged folks like myself. (Hope I got it right.)

[OzDave]

e.g.
$100 + 20%($20) = $120
$120 - 20%($24) = $96

[Jerry Ervin]

I think the real question here is, what is a 'retail' price for framing?

If I sell a moulding at 3 times length price because I bought better and someone else sells at 5 times length because they didn't. Which is closer to the real 'retail' price?

Second question, if I buy a really good 'knock off' at half the cost of the real thing, what should the 'retail' price be? Should I say the retail price is the same as the brand name then sell it at a % off?

[frmallday]

Jim, That is a great story, wish I had been there to hear it!
I definitely discount and feel that people "expect" it. It just isn't like the ole days anymore, like 15 years + ago where you can give a price and they're not clutching their chest.
I also got off my keester yesterday after reading this thread and raised my prices.
Now I have to hit my wall and raise those prices too to accomadate the shipping costs on moulding. I should have done that a lot sooner! I have been toying with dealing only with vendors who offer free shipping (with a minimum order)
I think it unwise to pass on vendor "deals" to the customer. Why give that $ away when it could be going to you. Although it can give you some room to discount.
Around here I don't see knock-off frames being priced less. I don't have of them on my wall but wouldn't discount them if I did.
There's a lot of ways that profit can sift out and it's not always easy to balance that fine line of pricing too high or too low. Checking out the competition is very helpful.

[Baer Charlton]

I think it unwise to pass on vendor "deals" to the customer. Lynn, that is the one thing that has always bothered me about the "buying right" arguement. Warren seems to make his entire living based on nothing but "box" pricing.... and that works for him.

When I buy 100' of a moulding that I sell often enough to justify that much space too.. I don't pass on any savings... I still charge the same as if I was ordering chop.

That "extra" profit, isn't "extra" at all; it pays the rent on that storage space and the money paid up-front for the moulding.

Also when a vendor has a "Special buy", that discount isn't for Mrs Murphy to get "special" pricing on her ONE 16x20, it's for ME because I ordered so much.

If Mrs Murphy wants to come in and order 25 16x20s, then and only then can we talk about a "special price".

From another perspective... take Home Depot... they NEVER have a sale. NEVER. But they do have "special buys". graemlins/thumbsup.gif

[Bob Carter]

The key is to make a good buy that allows you to market what you sell at a great price so that you may sell more.

Suppose you buy some great mldg at a reg cost of $5/ft and you sell it for $15/ft. You buy a deal and get it for $3/ft (40% off).

If you sell it for your regular price, you make $2/ft extra, but probably won't sell one more foot. But if you create a promotion, you might sell a few extra. And that will include a few extra lites of glass, a few extra filets, a few extra mats-all at full margin.

Pass it on? Only if you can create a vehicle to sell more.

But, I know pretty much every framer has a bunch of mldg in their backrooms with about an inch of dust that they bought "well" and left at regular selling price. Is it about time that I mentioned something about turning a Buying Advantage into a Selling Advantage?

[j Paul]

Originally posted by Bob Carter:
The key is to make a good buy that allows you to market what you sell at a great price so that you may sell more.

Is it about time that I mentioned something about turning a Buying Advantage into a Selling Advantage? Bob, I wholeheartdly agree. I listened to this advice from you before and have made a special purchase of a couple dozen LJ profiles. I am selling those profiles only at 25% off! Other items that go into package as you mention are at full price. Even at 25% off on the moulding I am maintaing my margin because of the special buy. I am selling more framing because of the advertised "Special Purchase"
I explain to my customers it is a special buy thus the reason for the discount. If they pick a different profile it is regular price. That makes that sale easier too, as they know why that other moulding cost more. Customers come in for the sale, but are only buying the sale profiles if they like them, otherwise they are picking something else and paying full price and not asking or expecting a discount.
For instance today a customer ordered 3 custom frames for 8x10 prematted art photos. She looked at a sale moulding, and opted for another profile even though it was regular price. My "CUSTOM FRAME SALE!" banner outside is what brought her in, in the first place.