Tool Box
Issue No. 38 - December/January 07/08
How to avoid discounting to oblivion
by Mr Tony Martin
If you have ever been caught in a discount war, you will know that the results are often very unpleasant and stressful and can severely damage the health of your business?
Although most businesses use some form of discounts for limited periods, a venture that depends on discounts for business will most likely fail. If not managed correctly, discounts have a nasty tendency to take control of a business.
Commodity businesses are most likely to get caught in the discount spiral downwards.
With little to distinguish themselves from their competitors, they quickly resort to promotions and discounts when the going gets tough. What they fail to understand is that their competitors have to follow suit.
The result is a downward spiral of decreasing margins as they fight for market share.
Nothing demonstrates this better than the competition in the family car market some while ago in the United States.
The big US car makers - General Motors, Chrysler and Ford - have been suffering in recent years. Increased competition from foreign car makers, recent increases in oil prices and poor labor relations have taken their toll. This has been exacerbated by rising health insurance costs and the expense of funding the pensions of retired employees.
GM kicked off the discount war to clear excess inventory by offering ‘employee discounts’ to the public. Basically, anyone could buy a GM car at the same price as a GM employee, something lik...
