Can Independent retailers play (and win) in the extreme discounting arena? Learn how can you make the most of your loss leaders to ensure you turn a profit.
Forget Valentine’s Day or Christmas, Black Friday is fast-becoming the busiest consumer-spending day of the year.
The seasonal sales event has been captivating hungry shoppers in the USA for years and is now taking hold in South Africa as local retailers look to bolster their revenues for one day only – by offering ‘once-in-a-lifetime’ discounts.
More importantly, though, Black Friday serves as a starter’s pistol – signalling the coming of the festive shopping season. Trends show that 30% of annual retail sales occur between Black Friday and Christmas, and certain retailers like jewellers report as much as 40% of annual sales during the period.
Is it time you pulled the Black Friday lever to grow your sales too?
BLACK FRIDAY BY THE NUMBERS
BLACK FRIDAY IN THE USA
BLACK FRIDAY IN SOUTH AFRICA
“General retailers were the main contributor to the sales growth.” – Fin24
“This is because consumers are looking for better prices and bargains as SA’s economic growth has been sluggish.” – eNCA
“Black Friday brought last year’s festive season shopping, which normally takes place in December, forward a month to November. November 2016 retail sales generated R85 billion for the sector” – Business Day
BENEFITS (& DANGERS) FOR INDEPENDENT
RETAILERS CHASING BLACK FRIDAY CROWDS
Essentially, the business rationale that drives Black Friday discount strategies for retailers fall into the following three categories:
1. Loss Leader Strategy:
Employing a ‘loss leader’ strategy that entices customers to spend with a below-cost (or break-even) deal. The hope is that these shoppers will buy more, full-price items in-store while bargain hunting.
2. Pass on Discounts When Buying in High Volume to Customers:
Buying high volumes of popular products at a low rate, and move them in a short space of time while making a good margin during the seasonal sales event.
3. Selling Unpopular Stock at a Discount:
Moving out-of-trend or slow-moving stock, albeit at a high discount, for the benefit of not having to absorb the sunken cost of those items – and the ongoing overheads associated with housing that stagnate stock on the shop floor.
Unfortunately, most independent retailers are not able to compete with their larger counterparts on bulk buying for volume discounts. And selling unpopular stock at-cost, or below-cost, is not a sustainable model.
This leaves one key pricing strategy that independent retailers can leverage to their advantage – the ‘loss leader’.
IS A LOSS LEADER STRATEGY WORTH THE RISK?
- As you already know – selling items at-cost or below-cost will not sustain a retail business, so employing a loss leader strategy should not be undertaken lightly. You have to tactically plan for it.
- Also remember that a growing network of deal hunters have surfaced, through the Internet, fuelled by sites like co.za and Kompare.co.za – where shoppers can quickly and easily search and find the cheapest rates of products that want. These bargain hunters have no intention of buying anything else from a store and you may find that your loss leader specials won't lead to additional sales with these consumers.
“Loss leaders are the products that are sold at such low prices, they act as an enticement to buyers to step foot in a store.” – Shopify
Loss leaders can be used to establish your reputation for offering overall good prices and when executed correctly can result in a long-term pay-off in the form of customer loyalty.
However, making loss leaders work requires careful planning. This sort of discounting has traditionally been leveraged by bigger retailers who want to squeeze out the competition. A few smart strategic plays can help small retailers unlock big benefits by implementing a loss leader strategy.
6 WAYS INDEPENDENT RETAILERS CAN PLAN
SUCCESSFUL DISCOUNTED PRICING STRATEGIES
To craft a winning discounted pricing strategy, consider the following points:
1. Attract New Customers with Discounts
- It’s been proven that offering significant discounts during season sales events attracts new customers to stores they’d normally not spend with. In the USA, Target and Walmart report a flood of new customers on Black Friday, while local retailers like Game and Makro report similar influxes of ‘new’ shoppers looking for discounted deals.
- While the success of this strategy lies in how aggressively you discount, you can also consider adding value-added services such as free-delivery if you sell large items like TVs and household appliances – or a novelty attention grabber like free coffee or free parking – to attract new spenders.
2. Promote a Loss Leader with a Companion Product
- People are drawn to buying sets of matching items, so placing products together could generate more sales.
- A home-store retailer may consider marking down hand towels, and positioning them next to full-price bath towels from the same range.
- A pet supplies store could mark down cat bowls, while dog bowls in that matching set may be regularly priced.
- It’s key that you determine what your shoppers are most likely to buy in combination, then look to discount the item where you can afford the margin loss.
- Nothing goes together like charcoal and firelighters, for instance, so consider the variety of your stock and package your displays and offerings accordingly.
3. Train Staff to Up-sell During the Sale
- If you train your employees to up-sell or cross-sell items during seasonal sales events like Black Friday, you can improve the chances of customers buying more full-priced items.
- After all, you want to sell a higher priced item or an item with better margin, don’t you? You want to be in a position where even if an employee sells a loss leader, they also offer add-ons to the sales like accessories that can offset the lost margin.
- Consider shoppers that come in for discounted running shoes – how you can persuade them to leave with matching running socks or work-out gear?
- When you hone your employees’ selling skills (and role-play with them before key sales days) they’ll be adequately prepared to bolster revenues when consumers come banging on your door for loss leaders.
4. Give Them More Combo Deals
- Nothing feels better than getting more than what you bargained for – particularly during a seasonal sales event.
- Retailers like Clicks and Dis-Chem are already leading the way when it comes to bundled combos. You can consider offering 2-for-1 deals or Buy 1-Get-1-Free.
5. Use Your Location to Your Advantage
- If you’re located in a shopping centre where the large retailers are known to promote seasonal sales events in a major way, why piggyback on their marketing spend to attract customers? During Black Friday for instance, you can focus on your shopfront – the window displays, the on-site branding and how you can attract the foot traffic of consumers there for the big sales.
6. Combine Savings with a Loyalty Programme for Repeat Sales
- During seasonal sales events, you can drive loyalty and recurring revenue by offering returning customers benefits on volumes of sales over time when they use their loyalty card.
- Implementing a Loyalty Programme offers retailers the additional benefit of being able transform anonymous purchases into a rich source of insights and market directly to their most loyal customers.
- Talk to us about setting up your Sureswipe Loyalty Programme today.