Promos Are Not the Answer to Declining Customer Counts

BY AJINDER HANDA, NCASEF VICE ChAIRMAN, PRESIDENT, GREATER SEATTLE FOA

Not too long ago we used to generate more profit at our stores thanks to traffic drivers that helped us maintain our customer counts and margins. But lately, it seems like our whole store is on promotion. In the last three to four years, I have counted as many as 159 promos during a cycle. 7-Eleven, Inc. claims that having these discounted promos helps move foot traffic inside the store. however, I don’t think we should set the precedent that every time our customer buys from us it’s at a discounted price. That’s just bad business.

Companies invest in building strong brands not because it’s a fun thing to do, but because stronger brands pay off for them in terms of more revenue, bigger margins, higher customer loyalty, better talent acquisition and ultimately, greater shareholder value. yet on a regular basis many companies do something that hurts their brand value now and erodes it significantly over the long term—they run price promotions.

The truth of the matter is, if you spend many years keeping promotions for an extended period of time and training your customers to wait for your price promos, then it’s very hard to get back to better profitability. A perfect example of this is Subway and its $5 foot long sandwich deal. The same will happen to us with our $2.22 for a quarter-pound hot dog and Big gulp deal. The focus here is on the price instead of how good the hot dog is. Also, you will not be able to focus on taking the quality product to the next level since you have to sell it cheaper or on promotion. It forces you to cut corners.

When business and sales professionals accept a lower price, it opens a veritable Pandora’s Box of problems that could put your business at risk. here’s how discounting hurts your business:

• It creates an expectation of future discounting.
• It complicates your business dealings.
• It demonstrates a lack of confidence in your product and company, and erodes trust in you.
• It squeezes your profit margin unnecessarily.
• It forces you to cut corners (or at least consider cutting them).
• When you’re offering your customer a discount, you’re going to have to sell a whole lot more in order to meet your monthly goals. While this might not necessarily affect your current sales, think about what it means for your workload, which in turns affects your ability to sell effectively.
• When you offer a discount, you are taking the focus away from the value you provide and placing it squarely on your price. There is no way to escape then. Not only that, studies show that discounts actually reduce the effectiveness of whatever is being discounted. In a buyer’s mind, the discounted offering literally does not perform as well at full price.

We can see how discounting can negatively impact our business and cause more pain than it may be worth. But what methods can we leverage that will still help us to increase customer counts and sales without slashing our prices? here are a few ideas:

• Focus on value, quality and customer experience.
• Show your confidence, prove that what you’re selling works.
• Avoid bargain hunters who may overuse your customer service resources and never convert into loyal, returning customers.
• Preserve your brand’s integrity by limiting the number of coupons and promos and steering clear of deep discounts.
• Encourage new product trials, repeat purchases and higher average transactions through incentives that motivate buyers to add more items to their cart.

We are hearing—from our CEO to our field consultants— that our brand is hurting due to a decline in customer counts. Don’t you think it’s time to think out of the box and work on value and quality, instead of having worthless or too numerous promos?

Warren Buffett once famously said, “Price is what you pay. Value is what you get.”