Intelligent Discounting Can Drive Better Profits
Last week, Marka and the FEI tribe discussed the concept of product “cannibalization” and how it should play into a company’s overall product-entry strategy. This week, they discuss how strategic discounting can lead to better profits. Remember, fire = print.
Lucy stood before the FEI tribe one morning at their daily product strategy meeting.
“Today, we’re going to talk about the ‘D’ word,” Lucy said.
“Donut?” Zoot suggested.
“No, no,” Numo said. “It’s obviously ‘danish.’”
“Sounds like you two haven’t had breakfast yet today,” Lucy said. “Actually, the word I’m referring to is ‘discounting.’”
“FEI does not discount,” Org stated definitively. “My grandfather Prometheus didn’t discount, and my father didn’t discount...you get the idea.”
“Are you sure about that?” Numo asked.
“Why, Numo, I’m surprised to hear you of all people being open to a discussion about discounting,” Marka remarked, raising a straw colored eyebrow.
“If the demand for our product is ‘elastic,’ we’ll sell more units and make more money,” Numo explained.
“But our profit percentage per unit sold will be lower,” Org said.
“That’s true,” Numo conceded. “Discounting doesn’t always make sense for FEI, but pricing to the realities of the marketplace should at least be considered. In the right situations, intelligent discounting can lead to better profits as well as revenue growth. Marka, pass the coal please.”
Marka handed Numo the coal, and he began writing on the whiteboard:
Discounting Can Help Keep Competitors Out of an Account
“The cost of losing a highly valued customer is sometimes greater than the cost of the discount required to keep the business,” Numo explained. “If we notice a competitor closing in on one of our valued accounts, we might decide to discount in order to lock the client in and discourage the competitor from getting involved.”
“Why else would we discount?” Org asked.