in South Australia
Issue No. 4 - February/March 2002
Death by Discount Revisited
by Max Baldock
Changing styles, stock passing its use—by date, and housecleaning are just a few of the many good reasons for businesses to discount stock. But because the pitfalls are almost as numerous, businesses must be aware of the risks and how to avoid them.
In the previous edition of in—business, the dangers associated with discounting were discussed and reasons given as to why many businesses ran the risk of death by discount. Before discount programs are begun, two fundamentals must be observed: 1) Clearly set down the outcomes desired from the discounting program, and 2) monitor the program to ensure that those outcomes are achieved.
Remember, the ultimate goal should be an increase of net profit to the business!
It is now timely to analyse some common reasons for discounting, together with some simple forms of monitoring to help determine their degree of success.
Clearance of surplus stock
This might be because of
- Stock becoming unfashionable.
- Stock its use by date.
- Large purchase of stock from suppliers at heavily discounted rate.
- Clearance of stock for supplier on a “sell or return” basis, Etc
Obviously the outcome will be to sell as much stock as possible. Determine the desired gross profit from the discounted items and any additional costs in advertising set—up costs and additional staffing costs to determine a bottom—line return. Or, surplus stock might be considered on a product line basis with returns from sale items being part of the return from the total sales of that product line. In this approach, it would be essential to determine the total net return from the item line so that decisions can be made as to the value of retaining such items as part of the business stock portfolio.
Determine whether clearance sales can be strategically located to maximise on—selling of nondiscounted items or to achieve other outcomes such as customer...
