Competing with Gift Cards

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February 24, 2014
Every Phone Call Is Important
March 18, 2014

Do you have one of those pool or spa salespeople who think that giving a discount is the easiest way to make a sale? They may be right, but what about you’re lost profit? If your product has a profit margin of 40% and your salespeople give a 10% discount to make the sale, you’re losing 25% of the available profit!

You must protect your price and your margins. Teach your pool and spa salespeople people not to hesitate or stutter when a buyer insists on a lower price. With enthusiasm, they may repeat the benefits and features of their products and not give in to a lower price. If you have done your homework and priced your products competitively with the margins you need to operate your business, you should be in line with the competition. Whatever new price is offered, you may get a response asking for more and more because they know you will drop your price. Once you get a reputation for dropping your pricing, it will snowball. The buyer isn’t stupid. But you don’t have to lose. Start using tactics to hold firm on your prices.

Suppose you sell a pool filter system with selling price of $1000. Assume that your cost per system is $700. The net profit on each filter is $300. If ten sold at the full price, the profit is $3,000. Compare this again with selling ten filters, but at a discount of ten percent. The total selling price for ten filters is then $9,000. The cost for ten systems remains at $7,000. The total profit has decreased to only $2,000 compared to $3,000 where no discount was given. If your company continued to sell at ten percent discount, then you’d have to sell 15 filters to achieve a profit of $3,000. This means that by giving a ten percent discount, your company must sell 50% more filtering systems, which is 15 instead of 10 to earn the same profit!

You might think that if I don’t give discounts you will lose sales if you are higher priced. The internet is our biggest competitor these days and some prices online are just too low to match and survive in business. First, remember that it is okay to lose a few sales if you take the above example into consideration. (You can actually sell 5 less and make the same profit.) However, we never like to lose a sale to one of our customers because we don’t want to encourage them to start purchasing things online or at another pool and spa store. One alternative is to sell your product at your regular price and offer a gift card. The amount of the gift card can be the retail difference (or even a little less because they are able to walk out of the store right then and there with the item they want to purchase.) Order some rechargeable gift cards that are easily charged and tracked in your POS system. Define that the gift cards are redeemable for your higher margin items such as maintenance, toys and chemicals. Everyone with a pool or spa needs those. If you have a 50% margin or 100% mark up on the majority of the items in those categories, instead of giving a 10% discount in the example above, give a $90 gift card (or try $75). In actuality, your cost or lose on this transaction is only $45 rather than $90. If you average a 60% margin or 150% markup, your loss might only be $36 rather than $90. Allow your customer to use it same day if they need one of those types of items or they come back another day. My experience has shown that this method of price matching and discounting is well received by customers and keeps the profits more in line with what we need to make.

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