Common Mistakes When Giving Discounts

Marketing is one aspect of business that aims to introduce products to target consumers, create a sense of interest, make your product considered by the public, and to create loyal customers for your product. There are many aspects that must be done to achieve all the specific goals in marketing. There is a model, the AIDA theoretical model, that suggests there are four interrelated elements and the response from target consumers becomes the measurement level of promotional activities carried out. We will explain more about the model below:
1. Attention – The company must be able to attract the attention of target consumers by doing creative things to strengthen the character of the products being marketed so that your products look attractive in the eyes of your target consumers.
2. Interest – After getting the attention of the target consumer, the next challenge in this concept is being able to generate interest from the target consumer who sees it.
3. Desire – The response can raise expectations related to the opinion of the target consumer in buying a product. After generating interest, the next step is to move your target consumer’s desire to try your product.
4. Action – Decisions that have been made in the previous promotion stage are able to produce community action to realize their desires by using the products offered.
Promotional action by giving discounts to customers is the stage to create a response of desire (interest) and action (action) to try and buy the products you offer. Giving discounts to customers has become a very common thing for F&B business people, but do you know the various ways to benefit from giving customer discounts? Here are four benefits and each way to give a discount:
 

1. Increase awareness

Giving discounts to your customers can have the effect of increasing the awareness of your target consumers about the existence of your business or product. Here are some simple ways to implement it:
● Customers as disseminators of information – you simply provide discounts on conditions that make your business information widely spread. For example, you could give a 25% discount on each of your products however, customers are required to take a picture of your business and it must be posted on their social media and then shared with three friends.
● Give big discounts – We definitely agree that large discounts will definitely attract customers to buy. Like the “buy one get one free” promo and apply multiples or 50% discount for each transaction. By increasing the volume of sales, indirectly many customers have tried your product and they are aware of the existence of your business.
Providing discounts with the hope of increasing awareness is suitable for business people who have just started their business and suitable for a business that has just opened a new store in another location.
(Image Credit-Google)

2. Increase profits

Every business person has the same goal, which is to get the maximum profit they can get. Giving discounts to your customers can be one way to increase profits directly. Maybe you think that giving discounts is an activity that costs a lot and does not have a direct impact on increasing your business profits. However, note the following simple things that can help you to benefit immediately from giving discounts to customers.
● Product margin – any think that a product margin is just a unit of a number that calculates the distance between the selling price of a product and the cost of production (capital) of that product. Suppose your product has a selling price of RM100 and the cost of production (HPP) of your product is RM 60. If calculated, you have a product margin of 40% or RM 40.
Determining the product margin at the beginning of a product is very important, imagine if you only set a product margin of 20%. For example, you decide if the selling price of your product is RM 200 with a product margin of 20%, it means that you have a gross profit (difference between the selling price and production costs) of RM 40. When you give your customers a discount of 20%, it means you will have no profit.
When you determine the amount of the discount, you should first calculate the average product margin of the products you currently have, because the amount of the discount in percentage will be directly proportional to the percentage of the product margin. In the f&b industry, it is very common to determine the highest product margin, therefore business people can provide discounts of up to 60%.
● Sales quantity – The simple concept is, you will be able to get more profit from discounted products when your transaction amount increases to a certain number.
We can conclude that if you want to get more profit, you have to sell more quantity than usual. The percentage increase in the quantity required is not linearly proportional to the amount of discount you give to customers. The higher the percentage discount you give, the higher the percentage increase in the quantity you must achieve. Therefore, you must be able to consider and make a target for increasing the number of sales if your orientation is to get an increase in profits.
● Discount terms – The conditions you define, can help you to reduce the cost of the discount you will give. Without good terms, the smaller the discount you give the less attractive it looks to customers.
(Image Credit-Google)
The amount of discount percentage shown in Figure 4 will make customers interested. However, with the existing conditions, a 50% discount is only for the 2nd product in the same transaction and you can determine which products have high margins as product choices that will be subject to a 50% discount. Without the customer realizing it, you only give around 25% discount and you still get a high product margin.
 

3. Increase customer loyalty

Acquiring loyal customers is something that all business people want to achieve. By having loyal customers, you will get many benefits such as stable sales, getting free promotions, and getting positive feedback for your business. However, how can the mechanism of giving discounts to customers increase customer loyalty? Here are two simple ways you can implement:
● Game mechanics – Implementing game mechanics as a way for customers to get discounts is an interesting way to improve the customer experience when buying the products you sell. Make sure the games you present are attractive and easy for customers to get discounts on and are also accompanied by easy conditions.
● Customer membership – A customer membership program or customer membership, can be one way to bind customers and obtain customer data. The simple concept of a customer membership program is that customers will get more benefits when they register for a membership program. You can apply a discount mechanism as an added advantage for customers who register for the membership program.
When a customer has reached a certain point, the customer will get a certain reward in the form of a discount. Rewards that have been obtained by customers can be exchanged at any time by customers to get discounted prices. With this mechanism, customers tend to have the desire to collect more points for bigger discounts.
 

4. Leading customers to buy certain products

You must have a special treatment or view on each product you sell. This sometimes makes you have to do different ways to get the product to be purchased and get exposure until certain products succeed in creating a brand image for your business. Applying a discount to certain products will increase the possibility of increasing the sales quantity of that product. This is usually done for certain purposes such as:
● To deplete the remaining raw material inventory. This is usually done because of the accumulation of excessive raw material inventory and product discontinuation.
● Introducing new products to your customers.
● This product is one of the products that have a high product margin.
● Have more selling value at certain moments
The application of discounts on certain products to achieve the four objectives above does not require much consideration because it can be easily done in various ways. Starting from giving individual discounts on the product to making the product a gift for your customers.

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