Toys R Us has created the “Great Trade-In” event. This event offers consumers who bring used cribs, car seats or other baby products into a Babies R Us or Toys R Us location a 20% discount on any new product from selected manufacturers in the store.
In a public relations explanation, the company calls this event an effort to keep potentially unsafe children’s items from being resold. But a more realistic spin on this event is that it is a trade-in discount that increases the company’s store traffic.
The trick with discounts always is to control the percentage of the market that qualifies for the discount while still giving the company credit for offering low prices. Companies do this by carefully selecting both the segments that qualify for the discount and the form of the discount itself.
A trade-in allowance is a form of discount. There are at least nine of these forms in common usage, including rebates, coupons, discounts in kind, and several others. Most of these forms reduce the effective cost of the discount for the company. These forms of discount, along with the segments that are eligible for the discount, help a company control the spread of the discount to specific customer segments. In our work to analyze pricing through discounts, we have found that there are at least eighteen common customer segments which companies use. This Toys R Us discount is a loss leader discount, which goes to customers who come to a store in order to get a low price on a product and then may stay to buy other, higher-margined, products.
For more on pricing, see StrategyStreet.com/Improve/Pricing/Brainstorming Ideas.
Showing posts with label price discounting. Show all posts
Showing posts with label price discounting. Show all posts
Thursday, September 24, 2009
Tuesday, September 8, 2009
Membership Privileges
The snow skiing season is still a few months away. Still, in preparation for the upcoming season, the ski equipment promotions are underway. One of my favorites comes from Granite Chief. This is a fine retailer of ski equipment in Truckee, California. Each year, the company makes an offer to its customers: Purchase your Ski Service Card by August 31st for $100 and you will have a credit balance for $200 to be used on any of the company’s repair, mounting, tuning and boot-fitting services. Each time the card holder has equipment serviced by the store, Granite Chief will deduct the labor cost from the customer’s Ski Service Card credit. The credit is good only for labor. Any unused balances are not refundable and will not be carried over to the next season. The card expires on May 31, 2010.
This is a common approach to discounting (see Video #43: Four Simple Pricing Rules in Hostile Markets on StrategyStreet.com). The trick with a discount is to limit the customer segments who qualify for the discount. In this case, the store limits the discount to those who purchase a membership card. The store, then, further limits the discount to a total dollar amount.
We have seen many examples of club member discounts over the years. These discounts go to customers who have a particular relationship with the company. In some cases, the relationship is that of employee. For example, Delta subsidized new computers for its employees in a program it sponsored with PeoplePC. In other cases, the relationship is a bit looser. These are often “friends and family” programs that extend discounts to chosen customers. For example, recently Saks offered 25% off to “friends and family.” In a similar program, Banana Republic offered 25% off to its “friends and family” holiday shoppers. The codes for this discount program circulated by email on the internet. Not exactly exclusive, was it?
The Granite Chief program is an example of the second type of club member program. These programs offer discounts to members of company-sponsored clubs or affinity programs. Here the company is more specific in the definition of the customers who qualify for the discount. Programs falling into this category include frequent shopper cards offered by grocery stores. In another example, Chico’s, the apparel retailer, offered its best customers membership in the Passport Club. This club offered a permanent 5% discount for every $500 the customer spends.
All of these club member discount programs increase total sales and confirm customer loyalty. For more on approaches to discount products in ways that limit the discount to select customers, please see StrategyStreet/Improve/Pricing/Brainstorming Ideas/Change the Components of the Price.
This is a common approach to discounting (see Video #43: Four Simple Pricing Rules in Hostile Markets on StrategyStreet.com). The trick with a discount is to limit the customer segments who qualify for the discount. In this case, the store limits the discount to those who purchase a membership card. The store, then, further limits the discount to a total dollar amount.
We have seen many examples of club member discounts over the years. These discounts go to customers who have a particular relationship with the company. In some cases, the relationship is that of employee. For example, Delta subsidized new computers for its employees in a program it sponsored with PeoplePC. In other cases, the relationship is a bit looser. These are often “friends and family” programs that extend discounts to chosen customers. For example, recently Saks offered 25% off to “friends and family.” In a similar program, Banana Republic offered 25% off to its “friends and family” holiday shoppers. The codes for this discount program circulated by email on the internet. Not exactly exclusive, was it?
The Granite Chief program is an example of the second type of club member program. These programs offer discounts to members of company-sponsored clubs or affinity programs. Here the company is more specific in the definition of the customers who qualify for the discount. Programs falling into this category include frequent shopper cards offered by grocery stores. In another example, Chico’s, the apparel retailer, offered its best customers membership in the Passport Club. This club offered a permanent 5% discount for every $500 the customer spends.
All of these club member discount programs increase total sales and confirm customer loyalty. For more on approaches to discount products in ways that limit the discount to select customers, please see StrategyStreet/Improve/Pricing/Brainstorming Ideas/Change the Components of the Price.
Thursday, August 27, 2009
Couponing and Price Leaders
In the bleak economy in the first half of 2009, coupon redemption rose 19% compared to the same period in 2008. Even the largest Price Leaders (see Audio Tip #83: Price Leader Products and Companies on StrategyStreet.com) have had to go along with this development. The three largest discount clubs, Costco Warehouse, Sam’s Club and BJ’s Wholesale Club have increased their couponing to club members. (See Audio Tip #120: Using Low Price to Gain Share in Hostile Markets.)
Each of these three clubs carries a membership fee to join the retailer. These club membership payments entitle the retail shopper to take advantage of the large scale purchase economies each of these stores enjoys. The stores pass on these purchasing economies in the form of low prices for their members. Often these low prices alone are enough to provide these club-oriented retailers with attractive sales growth. However, even they have suffered in the bad economy of 2009 as consumers have spent less on discretionary items.
Now each chain is offering tailored coupons to selected members. Sam’s Club offers electronic coupons through kiosks at its stores. Today these coupons are offered to its highest paying membership categories, the Advantage and Business Plus cardholders. With the new coupon program, these selected members will receive three new coupons, good for about a month.
BJ’s has traditionally accepted manufacturers’ coupons which Sam’s does not accept. In the last few years, it has also provided members with coupons available at its web site for purchases in its stores.
Costco has been offering once-a-year coupon books, containing discounts with expiration dates staggered throughout the year. This keeps customers coming back to take advantage of the discounts. About a year ago, it began sending monthly coupon books with discounts expiring after four weeks.
In a tough market, even the lowest-priced of the Price Leaders have to offer something extra to keep the customers coming in.
A coupon is a form of discount (see Audio Tip #114: The Key Components of a Price on StrategyStreet.com), the method a company uses to convey a discount to a customer. Our research has determined that there are eight other forms of discount. Many of these forms reduce the cost of the discount to the company, while giving the full value of the discount to the customer.
Each of these three clubs carries a membership fee to join the retailer. These club membership payments entitle the retail shopper to take advantage of the large scale purchase economies each of these stores enjoys. The stores pass on these purchasing economies in the form of low prices for their members. Often these low prices alone are enough to provide these club-oriented retailers with attractive sales growth. However, even they have suffered in the bad economy of 2009 as consumers have spent less on discretionary items.
Now each chain is offering tailored coupons to selected members. Sam’s Club offers electronic coupons through kiosks at its stores. Today these coupons are offered to its highest paying membership categories, the Advantage and Business Plus cardholders. With the new coupon program, these selected members will receive three new coupons, good for about a month.
BJ’s has traditionally accepted manufacturers’ coupons which Sam’s does not accept. In the last few years, it has also provided members with coupons available at its web site for purchases in its stores.
Costco has been offering once-a-year coupon books, containing discounts with expiration dates staggered throughout the year. This keeps customers coming back to take advantage of the discounts. About a year ago, it began sending monthly coupon books with discounts expiring after four weeks.
In a tough market, even the lowest-priced of the Price Leaders have to offer something extra to keep the customers coming in.
A coupon is a form of discount (see Audio Tip #114: The Key Components of a Price on StrategyStreet.com), the method a company uses to convey a discount to a customer. Our research has determined that there are eight other forms of discount. Many of these forms reduce the cost of the discount to the company, while giving the full value of the discount to the customer.
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