Trying to Make it up on Volume? Remember Gross Profit Margin Analysis
Bob Dylan was right, the times they are a-changin. With the economy in trouble, it may be tempting to take drastic measures to keep your business investment afloat but you might want to stop and think before making any big decisions...
stuffed.co.nz -- Glen Fergusson - Sales and Marketing manager for a brand new Californian Porsche dealer has lost his job and faces possible legal proceedings as the company strives to reclaim the costs of the 18 Porches given away free under Glen's Opening day "buy one get one free promotion" "I admit I didn't really do the numbers properly on this one" said Glen who told reporters that he had "seen the concept work really well for coffee stores" and in terms of numbers you could argue that Glen's campaign worked. As the new Porsche dealer sold 19 Porches [sic] in the first hour of the store opening" [Read the full article]
Ok, so Snopes.com declared the story false, it was written by New Zealand's humor site stuffed.co.nz , but either way it's entertaining and there is a lessoned to be learned:
Don't fall for the old "making it up on volume" scheme.
Slashing prices may seem like a good way to move your inventory out the door, but before you get the "Super Sale" signs out take a step back.
Reducing your prices means reducing your gross profit margin. Even though products might be flying off the shelves without much effort in the short-term; it might actually take your company longer to make up what was lost in the markdowns, making you work even harder to break even.
Paul Williams of Idea SandBox advises in his blog on MarketingProfs Daily Fix that marking down prices can make your customers think that your products aren't worth their original price, which means that unless your customers "just gotta have it," they'll more than likely wait until you slap a sale sticker on it before they buy.
Williams advises that instead of offering everything at a discounted price, try offering additional products or services to your customers, this makes them feel like they're getting one heck of a deal and are getting the most for their money. If your company does it right, you'll create a win-win situation; your customers are happy and you retain their business and make money.
Times they are a-changin', but there is one thing that remains the same in these tough economic times: higher quality deserves higher prices, and you deserve to charge what your product is worth. If your company is in the business of quality, then your customers will remember you even as your competitor is cutting prices.
Add to Tip'd
