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Discounting Without Hurting the Bottom Line

Effective discounts can keep customers coming back and even get new customers into the store.
By Martha Spizziri

Discounting is tricky business. What works for one store or location won’t necessarily work for another. Retailers must have a clear idea who the competition is and who their clientele is, and be very clear on what their margins are so they know how much they can afford to discount.

Carla Periera, co-owner of the dog bakery Piglet’s Pantry in Mount Dora, Fla., said discounting is a must in order stay competitive. Retailers need it to attract repeat customers.

“That’s the name of the game,” she said.

Focus on Goals
Successful retailers pursue two goals with discounting, said Barry Berman, founder of the NexPet retailer. One is to encourage customers to buy more each time they come in. The other is to convince them the shop has good values and low prices, and is a smart to shop.

Meeting that second goal can be a challenge for independents.

“You’re always trying to fight the perception that you’re a fancy boutique,” said Aubrey Martin, co-owner of The Animal House in Damariscotta, Maine.

One way to emphasize value is always to have some items on sale. Offer discounts on products people buy, Berman said, not just clearance items. And regularly change which items are on sale.

Even better, hand out a monthly flyer that advertises sales for the following month. Berman advises retailers to make the prices on it valid for two or three weeks to get customers to come in sooner.

“The typical pet store consumer is coming in roughly once a month, because that’s when they need to buy food,” he said. “If a consumer comes in 14 times a year instead of 12, they’ll spend more, on average.”

Taking advantage of vendor-provided in-store promotions enables Susie Atherton of Canine Creek to offer her customers a discount without affecting her bottom line.
Getting existing customers to visit more often takes less effort that getting new customers, he noted, yet it’s something many pet shop owners neglect.

To increase transaction value—the amount a shopper spends each time she visits—one key tactic is the “buy some, get some” deal. A similar play is the bulk discount. Susie Atherton, owner of Tehachapi, Calif.-based Canine Creek Dog Wash & Pet Boutique gives a 10-percent discount when customers buy three or more cans of food.

Another approach is the cross-promotion. If you give customers who buy a bag of cat litter a cat toy at half price, “that means that the person has bought a cat toy they might not otherwise have bought,” said Berman. The discounted item should be something with a high margin, so you won’t lose money by offering it at half off.

What if a retailer is in a market where you have to compete with larger stores? Peter Breen, content director for the In-Store Marketing Institute, suggested selectively discounting a few very popular items that the competition offers.

Advertise Judiciously
Martin prefers not to advertise discounts.

“Other stores see that and it just becomes a battle of who’s the cheapest,” she said.

Atherton, who is also the founder of the peer-networking group Pet Industry Retailers, said she rarely advertises sales.

“We don’t want to train the average, casual customer to be price-driven,” she said.

Atherton also encourages customers to forward promotional e-mails to friends; she said a Christmas promotion offering a different deal each day doubled the size of her subscriber list from what it was a few months earlier. She credits that promotion with driving sales to a record high for the month and the year. One reason it succeeded: some of the items promoted were top sellers.

“If it’s a best seller, it will pull people in at a time of year when they’re busy,” she said.

An offer of a free $10 gift card was also successful. This was one case where Atherton restricted the deal to the original e-mail subscriber. She printed the e-mail list and highlighted customers’ names when they claimed their gift cards. About half the people came in to claim the card.

“And they always spent more than $10,” she added.

Keep Them Coming Back
Martin and Atherton also offer frequent-buyer discounts.

“People use those more than any of the other kinds of discounts,” said Martin. “The quickest way to ensure loyalty is to offer people something for free. There are lots of people who like us, but they’re not necessarily going to be loyal to us (without an incentive).”

In addition, both The Animal House and Canine Creek offer customers a free bag of dog or cat food after they’ve bought 12 bags. The program discourages “store hopping” because customers have to save their store receipts to receive a free bag, Atherton said. Even if Atherton charges $2 more per bag than her competitors, the customer saves $26 on the 13 bags.

Why 12 bags? That number seems to be standard among manufacturers. Martin uses manufacturer incentives whenever possible to cover the cost of providing the free bag to customers. (On brands that don’t offer such a program, she does cover the cost herself.) Atherton combines her own loyalty program with one offered by Canidae--so customers who purchase Canidae food get two free bags of food after purchasing 12.

“This double incentive has helped to drive Canidae to become our best-selling brands,” she said.

Food purchases aren’t the only items that can benefit from frequent buyer programs. Canine Creek and The Animal House provide frequent-bather programs for the self-service pet washing. At The Animal House, every 10 washes earn a free one. (The 10-wash threshold means customers can quickly earn the free wash.) Canine Creek offers a freebie after nine washes—that accrue per household, not per dog. That way, families with multiple dogs can afford to wash them more often. Atherton throws in a “fixed price for life” guarantee, too: Once a dog is registered in her system, his bathing price stays the same for his lifetime.

Martin emphasized that it’s important to be organized about managing frequency discounts. The Animal House doesn’t have a point-of-sale system, so they track discounts with cards that they stamp when a purchase is made.

“Make it clear to the customer what the rules are,” said Martin. “Have (them) clearly written on the card. And promote the program well by having signs all over the store.”

The rewards of a successful buyers club can be great.

"We’ve been able to cut our ad budget because people have been telling other people how much they can save by shopping with us,” said Atherton.

Little Things Mean a Lot
At Piglet’s Pantry, Periera also rewards loyalty. The store sells a reusable tote bag, and customers get 5-percent off purchases when they come in carrying the bag.

“We try to offer other little things,” said Periera. “We don’t offer huge discounts, just 5 to 10 percent. We do a Yappy Hour once a month. When people come and buy anything during that time, we give 10 percent of our sales to the Humane Society.”

The Animal House has a similar promotion: When people adopt a pet from an area shelter, “They bring their paperwork and we give them 10-percent off on their purchase to thank them for adopting,” Martin said.

Periera said 10-percent off is enough to get people to come back to the store.

“Plus, we offer a lot of combo discounts.”

Starting this year, customers who pay with cash get 2-percent off their entire purchase, since the credit card company charges a two-percent fee.

“So if you pay cash and use your bag, you get seven percent off,” Periera said.

Customers can get another two-percent discount if they bring back packaging from baked goods.

“That’s nine percent they could get off of one purchase,” Periera added.

According to Periera, people like programs that make them feel good—adopting an animal, as with the Human Society promotions; helping the environment by returning packaging for reuse; or helping the store by paying cash. Even with multiple discounts, she’s not losing money; she said she makes it up elsewhere.

“They’ll come in to buy dog food and see the newest toy on the market, and they’ll have to have that,” she said.

Try an Experiment
Berman said it’s worthwhile to experiment a little.

“If you’re selling to an affluent consumer and you think discounting is bad for your image, you might be right,” he said. “But affluent people are usually very heavy users of coupons and frequent-buyer programs.”

Similarly, matching competitor’s prices could be worth a try.

However, he cautioned, “There’s a big difference between saying you’ll match competitors’ pricing and lowering the price to beat the competition.”

With price matching, the customer must bring in the competitor’s ad to get the price cut. Berman said a banner advertising a price-match policy will help drive business, but the number of items you’ll actually have to sell at a lower price is likely to be small.

There was one strategy that no one interviewed for this story was in favor of: loss leaders—items sold below or close to cost in order to get customers into the store.

“We don’t personally believe in things like loss leaders,” Martin said. “I don’t feel like it’s ethical, because it just cheapens the brand.”

Rather than using a loss leader, a free gift is a good strategy, according to Berman.

"‘Free’ hits an emotional trigger,” he said. “A free sample is a good choice, since it introduces the customer to a new product.” <HOME>

Posted: February 19, 2010

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