Discounting 101

This article defines the exact circumstances when giving a discount to a client is helpful. (And when it is not)

It also shows the correct way of giving discounts without damaging the perception of your brand and product.

The information is a part of a long section from one of my training courses and the material is aimed at helping luxury retail professionals understand how to conduct a very confusing but crucial part of closing a sale.

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I read and heard long debates among professionals in the luxury goods market on whether discounts should be offered to clients in order to close a sale.

People are seriously divided when it comes to this matter.

This continuously causes tension between managers and sales people in the same store or between head office directors and retail stores’ staff members of the same brand.

Usually, sales people focus on closing sales by whatever tools they are allowed to use while head office professionals, including designers and marketers, hate the fact that their product needs to be discounted to sell.

To be clear, this is not about a brand conducting a Sale period, it is rather about discounting a product during the negotiations with a customer in a regular trading period and starting from a normal retail price.

There are three types of brands when it comes to discounting:

1. Brands which never give discounts even if the customer spends hundreds of thousands in their store or buys hundreds of items in one transaction. These are the likes of Chanel, Hermes and many others

2. Brands which offer discounts only to their VIP or regular clients or to close a big sale as when a new customer is buying multiple products for a big sum of money in one transaction. This is the majority of luxury and high street brands all over the world.

3. Brands that would give a discount to any customer even without the customer’s request.

The first category is, in my opinion, the easiest to sell but the hardest to build. When you sell Hermes, for example, you will not worry about a customer asking you for a discount or even expecting it, that’s because everyone knows if you buy Hermes from anywhere in the world and even if you spend millions in their stores, you simply would get no discount. Even Arab customers, who are notorious for haggling, learnt not to ask for discount when shopping in one of these brands’ stores.

Brands who fall in the first category are taking the hard route to building their perception in the minds of customers. It takes a long time and demands consistency to tell the world: “we are prepared to lose a sale rather than offering a discount to close one”. However, these brands always enjoy a more rewarding retail dynamic when they finally reach the stage where no customer expects discounting from them.

The second category brands (discounting only in some cases) are the ones I worked for and these are the majority of the market. To sell a product that is discounted elsewhere is really hard because customers nowadays are well traveled, extremely well informed (taking into consideration online shopping) and know how to shop around.

This is when you have the dilemma of whether to give a discount and not let your customer go elsewhere or not give a discount and feel good about protecting the image of your brand (or your store if you are a multi-branded retailer).

In short, I would never let a customer who is giving me all the right signals that they are ready to make a purchase walk away from me because of a discounting issue BUT I would never ever… ever … give a discount without going through the following steps:

1- Never offer a discount before the customer asks for it

I have seen this. I mystery-shopped many salespeople whom when asked about the price of an expensive item, they reply: Oh this is 15000 but don’t worry, we’ll look after you!!!

What?! Why?! Are you being apologetic about the price of your product? Are you trying to tell me that your product is not really worth 15000? You are shooting yourself in the foot my friend, because even I am obsessed with your product and can afford to pay the asking price, well now, I wouldn’t; Simply because you just told me not to.

When presenting your retail price, always do it with a level of confidence that your client would feel that you may be so surprised if they dare to ask for a discount.

2- Prepare to lose a sale on your regular stock rather than selling it with a discount

If you are prepared to discount your regular stock (which in retail we call “the bread and butter items”) then you are giving the impression that you are a discounting brand (third category). Losing a sale of your regular stock on the basis of refusing to discount it has more benefits that losing the image of your brand just to sell an everyday item with a discount. Luxury brands should never appear desperate.

Only be prepared to give a discount on high end, special, or hard to sell products.

3- Always start from NO discount

Now let’s face it. When a customer asks a salesperson for a discount, even experienced salespeople would have the image in their minds that: If I say no, they would walk away and I would lose the sale.

In reality, this would never happen. No real customer who is prepared to buy your product would walk away immediately after saying politely that you don’t do discounts. Keep in mind that you spend on average 15 minutes to half an hour building rapport and presenting products before reaching the price negotiation stage.

Every real customer would ask again in a different way when you say no to discount. Usually customers give you a reason to why they are asking for discount in a second attempt, for example: I have seen the same product elsewhere cheaper. Or: I am a regular customer in another store where they always give me a discount. Or simply: I really like the product but I need you to help me to be able to afford it as I wasn’t planning to spend this much.

At this stage, you are actually building a stronger relationship with your customer as he/she is opening up to you.

Now why should we say no then? I hear you ask. That’s because your customer would never ever accept your first offer. Customers make a purchase on the second or third offer of discount. So if you start from a 5% discount, the customer would ask again. So you will have to go up to 7.5% or 10% to close the sale.

Knowing this, you should always start from 0% (which is no discount) in order to be able to close the sale at 5% or so. And never give your maximum first because first, you will never close the sale and second, you will leave yourself no room to maneuver.

4- In luxury retail we never give discounts… we only give gestures

If you reach a stage where you know that you need to give a discount in order to close the sale, you should do your image a favor and never say the word “discount”. Psychologically, discount cheapens the value of your product and damages the image of your brand. Instead, always talk about making gestures. This gives the impression that you are merely helping your customer acquiring your product because you are a nice person not because your product is not worth the original price.

5- Before offering a discount, always ask your manager

Be sure that when the customer finishes negotiating with you about how much discount they can get, and when they feel that you reached your maximum in what you can offer, they will most probably ask to talk to your manager as they think that managers can offer higher discounts than you can.

To save yourself this sudden move, and before offering any discounts, say to the customer that you really would like to help but first you need to consult your manager.

Even if you are the manager of the store, still, go and talk to an imaginary manager away from the sight of your customer.

This way, you are giving the customer the satisfaction that what you will offer is the maximum what anyone in the store can offer including the almighty Manager.

6- Never talk percentages, always talk money

It feels dramatically different when you say to a customer, I am happy to give you a gesture of “75 Pounds” on the price of this item, than saying, I will do 5% on it. Talking money allows the customer to imagine that you are actually putting 75 pounds cash in their pocket right now while they can’t imagine how a five percent looks like in a physical form.

Also, when talking percentages, the customer would always round the final figure down but when you talk money, then you can round it up before offering it to the customer.

7- The devil is in the wording

Make sure to say to your customer that you are offering this gesture only on this occasion and because they are buying a “special” product. This is because:

• You don’t want your customer to think that they can get a discount every time they come to your store

• Customers talk to their friends and family and you might receive another customer one day who demands a discount mentioning that you gave one to their friend in the past. On this occasion you can always say that the gesture you made was because they were buying a particular “special” item from your collection… and you are happy to give them the same gesture if they buy the same item (which is usually an expensive purchase).

8- Always suffer when giving discounts

If you give discounts without suffering, the customer would never stop asking for more. It is not psychologically satisfying for a customer to accept an offer from a sales person without seeing this salesperson losing. It is a psychological game after all. Customers feel good at beating salespeople. So always show the customer that they won by showing them that they are taking something from you, which you were not prepared to give. Look sad and broken when offering the discount.

These are the steps I always took while giving a discount on a high end or hard to sell item. Through my experience in this field, I can swear by this plan. It really worked for me every time. More than that, as a salesperson, it made me feel good at not losing sales but, at the same time, protecting the image of the brand I work for.

Oh I haven’t discussed the third category brands I mentioned above (The ones that give discount to any customer). Well, I feel sorry for them. Such brands would never last long in the luxury market and would usually either go out of business or move to become a cash cow for their investors before selling the name of the brand to a mass market perfume or fashion manufacturer.

I hope that you enjoyed and benefited from this article and would really appreciate your opinion in the comments below.

Thank you

Said Chaarawi 2017

www.chaarawi.com

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