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How can you use discount pricing to clear out slow-moving inventory without losing profit?

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Discount pricing is a common strategy to attract customers and boost sales, but it can also be a double-edged sword for retailers. If you use it too often or too deeply, you may erode your profit margins, damage your brand image, and train your customers to wait for bargains. On the other hand, if you have slow-moving inventory that is taking up valuable space and costing you money, you may want to clear it out as soon as possible. How can you use discount pricing to clear out slow-moving inventory without losing profit? Here are some tips to help you balance the benefits and risks of discount pricing.

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Nishant Singh Didawat

Startups | SaaS | AdTech | MarTech | Digital Commerce

1 Know your costs and margins

Before you decide how much to discount your products, you need to know how much they cost you and how much profit you make from them. This means calculating your cost of goods sold (COGS), which includes the direct costs of producing or acquiring your products, such as materials, labor, and shipping. You also need to factor in your overhead costs, such as rent, utilities, marketing, and administration. These are the fixed costs that you have to pay regardless of how much you sell. Your profit margin is the difference between your selling price and your total costs. The higher your margin, the more room you have to discount your products without losing money.

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Nishant Singh Didawat

Startups | SaaS | AdTech | MarTech | Digital Commerce
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The single most important metric that needs to be optimized for, but is generally ignored because of factors like limited knowledge, confidentiality, misaligned targets, etc.

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2 Segment your inventory

Not all products are created equal when it comes to discount pricing. Some products may have a high demand and a low supply, which means you can charge a premium price and avoid discounting. These are your star products that generate the most revenue and profit. Other products may have a low demand and a high supply, which means you have to lower your price and offer discounts to move them. These are your dog products that generate the least revenue and profit. You should segment your inventory into different categories based on their demand, supply, and profitability, and apply different discount strategies accordingly. For example, you can use a higher discount rate for your dog products than your star products, or bundle them with more popular products to increase their perceived value.

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3 Choose the right discount method

There are many ways to offer discounts to your customers, however, not all of them are equally effective or profitable. For example, percentage discounts reduce the price by a certain percentage, such as 10%, 20%, or 50%. This method is easy to implement and understand, but it can also reduce the profit margin significantly if used too frequently or too deeply. Dollar discounts, on the other hand, reduce the price by a fixed amount, such as $5, $10, or $20. This method can be more appealing to customers who want to save money, but it can also lower the perceived value if used too often or too high. Buy one get one free (BOGO) offers a free product or service when a customer buys another one at full price. This method can increase sales volume and customer loyalty, but it can also cut the profit margin in half if you don't account for costs and margins. Lastly, free shipping offers to deliver products to customers for free, either for a minimum order amount or for all orders. This method can reduce cart abandonment rate and increase customer satisfaction, but it can also increase shipping costs and reduce profit margin if not charging enough for products. The best discount method depends on goals, costs, margins, and customers' preferences; thus testing different methods and measuring their impact on sales, profit, and inventory turnover is important.

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Nishant Singh Didawat

Startups | SaaS | AdTech | MarTech | Digital Commerce
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There's not enough actionable testing or research on the pricing front, especially for marketplace listings. Brands and analytics tools need to look beyond min-max-avg price points and offer-wise performance to develop a better understanding of pricing. Ideally, just like ad operations, pricing needs to be altered in an always-on manner, programmatically.

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4 Time your discounts wisely

Discount pricing can vary in effectiveness depending on when it is used. Seasonality, competition, and urgency are three factors that can influence the timing of discounts. For instance, you can offer early bird discounts before a season starts to encourage customers to buy, or clearance discounts after a season ends to liquidate leftover inventory. Additionally, price matching guarantees can assure customers they are getting the best deal, and flash sales can create a sense of scarcity. Moreover, loyalty discounts can reward repeat customers or referrals. Ultimately, the best time to use discount pricing depends on your market, product, and customer behavior; you should monitor trends and patterns in your industry and adjust your strategy accordingly.

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5 Communicate your discounts clearly

Discount pricing can be a powerful tool to clear out slow-moving inventory without losing profit, if used wisely and strategically. Knowing your costs and margins, segmenting your inventory, selecting the right discount method, timing discounts effectively, and communicating discounts clearly are all essential elements for success. Email marketing, social media marketing, and in-store marketing are all viable options for communicating discounts. The best communication method for you will depend on your budget, resources, and customers' preferences. Try using a combination of different methods and measuring their impact on traffic, conversions, and sales. How do you use discount pricing in your retail business? Share your tips and experiences with us.

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6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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How can you use discount pricing to clear out slow-moving inventory without losing profit?

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2

3

4

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1 Know your costs and margins

2 Segment your inventory

3 Choose the right discount method

4 Time your discounts wisely

5 Communicate your discounts clearly

6 Here’s what else to consider

Retail Marketing

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How can you use discount pricing to clear out slow-moving inventory without losing profit?

1

2

3

4

5

6

1 Know your costs and margins

2 Segment your inventory

3 Choose the right discount method

4 Time your discounts wisely

5 Communicate your discounts clearly

6 Here’s what else to consider

Retail Marketing

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