Good strategy? Or slippery slope? In one of my earlier blogs I dealt with the folly of discounting during peak selling season. I guess it was inevitable that I was asked “What about the off season? Is it all right to discount then? Here are the thoughts that came to mind when I heard this question:
- Does everyone buy during the peak season?
- If not, then why do you want to discount?
- If you discount during the off season, how will your customers react?
- What messages are you sending to the market?
- Does this strategy really solve the problem you’re facing?
Let’s address each of these questions in order.
Does everyone buy during peak season?
Of course not. People buy when it suits their needs, not because it’s your peak selling season.
If not, then why do you want to discount?
Certainly the off-season buyers are getting as much value as the peak season buyers, so why discount? Ostensibly to generate cash during slow times, right?
How will your customers react?
You don’t need to trust me on this. What would YOU do if you could suddenly save 10%, 15%, 20% or more during the off season? You’d wait until the off season to make your purchase.
If you want a sense for how well this strategy works take a look at the automotive industry. Whenever they experienced a sales slowdown the car companies offered a rebate, then 0% financing, then a rebate and 0% financing, then employee pricing, on and on and on until they trained us to wait for a deal before buying. If you’re looking for a reason for the huge losses they’ve suffered in recent years, you just found it.
What messages are you sending to the market?
First, you’re telling them that you’re hungry for business. As a buyer, and we’re all buyers, does that inspire confidence in you? Do you want to do business with a company that’s struggling? Are you concerned about service after the sale?
Second, if sellers can discount heavily during the off-season, provide the same quality and service and still make money, they must have been price gouging during peak season. None of us enjoys feeling that we’ve been duped.
Third, if sellers weren’t engaged in price gouging, how can they remain profitable at these discounts? The only answer is that they’re cutting corners – using lower quality materials or eliminating some of the service they normally provide. If that’s the case then are you really saving money by buying in the off season?
Does this strategy really solve the problem you’re facing?
Based on the answers above, no. It doesn’t solve the problem. It’s counter-intuitive, but this strategy is likely to exacerbate your cash flow problem in the long run as you shift sales from one period to another while giving up margin. So what’s the solution?
Learn to manage your cash flow so that you can use the slow periods to discover new ways to serve your clients – ways that will allow you to gain higher prices and margins. Or enter a counter-cyclical line of business – one that offers comparable or better margins than your existing line. Either strategy will help you avoid the problems associated with off-season discounting while positioning you for a bright and profitable future.
Author – Dale Furtwengler