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Jun 24
2009
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Have you ever been in a similar situation like Jessica did? She promoted a purse of brand A at her store, she was so happy when she saw sales on this product rose 50% per day on average. However, when she looked at her total gross margin (sales excluded cost of goods sold) at her store, it did not change that much and even decreased a little bit.
She did not get more money in the promotions and even lost some money! I call this promotion trap.
How does this happen? I will talk about promotion trap in this blog and coming blogs.
If you are stuck in a promotion trap, first of all, of course, you should check your sales report. Check whether your gross margin earned on this product on a daily basis increase or not.
If it doesn't, it indicates that your promotion failed completely, you did not get enough purchases to compensate for your sacrifice (e.g. discounts or coupons...) in the promotions.
Do not be afraid of failure, it is much better than you do not take any actions to grow your business.
Tip: read your sales report for the promoted product on a daily basis to adjust your promotion strategy.
- On promotion day one, do your sales on this product grow?
- If not, decide whether you want to continue this promotion because many people might and might not come in the following days.
- If you do see sales on this product grow in the beginning days, how about your gross margin on this product?
- If you promote it for a few days(3, 5 days), you still can not see daily gross margin grow on this product, you should make some changes, either stop the promotion to prevent further loss, or change promotion strategy.
If your gross margin earned on this product does increase, it means your promotion at least help you make more money from this product. Jessica actually was in this situation when she promoted the purse. But how come her total gross margin did not increase? We will talk about it in my next blog.
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written by Donna Tang, June 30, 2009
Hi Ted:
I agree that discounting is not a good way for small retailers to compete in the competitive market. I think the best way small retailers to retain customers and boost sales is to provide personalized service and value added service.
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written by Donna Tang, June 30, 2009
Hi Jean:
I am so glad that you are so interested this article. And I am so glad to see you shared your story about "promotion trap". Thank you so much.
I am so glad that you are so interested this article. And I am so glad to see you shared your story about "promotion trap". Thank you so much.
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written by Ted Hurlbut, June 30, 2009
Discounting has a very corrosive impact on smaller independent retailers, both on margins and the value proposition. For example: a discount of 20% on 50% margins requires an increase in unit sales of 67% to generate the same profit dollars. Stop for a second and think that through. If you run a 20% off sale, you'll need to sell 67% more units just to break even.
This points to the fact that smaller, independent retailers can't afford to compete on the basis of price. no matter how deep their pockets are, they're not deep enough.
smaller, independent retailers must differentiate themselves on the basis of the niche they coomand, the items they sell, and the experience they offer their customers, and a proactive outreach to customers one-on-one. This is the only way to build a community of customers, held together by a common interest.
This points to the fact that smaller, independent retailers can't afford to compete on the basis of price. no matter how deep their pockets are, they're not deep enough.
smaller, independent retailers must differentiate themselves on the basis of the niche they coomand, the items they sell, and the experience they offer their customers, and a proactive outreach to customers one-on-one. This is the only way to build a community of customers, held together by a common interest.
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written by Jean-Luc, June 26, 2009
Hello Donna,
I just saw your post on LinkedIn and I was interested to read your promotion trap article, which is wonderful.
As an owner myself, I have been in this situation more than once.
Each new product we sell in our store has a sales inertia. What I mean is, once the products are available for sale, it takes a while to be succesful after promotion. I also found that it helps a lot to create a product guide and talk about the products, which gives more information for the potential customer.
The time it takes to ramp up sales could be anywhere between two months and six months particularly when you've got an online store like mine. It depends on your ability to promote your new products, your budget and search engines if you are selling online.
One promotion trap we fell into is to offer free shipping on a $50 minimum order. This ended up being unprofitable after figuring in the cost of shipping and we also found that these customers do not necessarily return.
The golden rule is to be patient, observe how sucessful your products are and learn how you can do a better job next time.
I just saw your post on LinkedIn and I was interested to read your promotion trap article, which is wonderful.
As an owner myself, I have been in this situation more than once.
Each new product we sell in our store has a sales inertia. What I mean is, once the products are available for sale, it takes a while to be succesful after promotion. I also found that it helps a lot to create a product guide and talk about the products, which gives more information for the potential customer.
The time it takes to ramp up sales could be anywhere between two months and six months particularly when you've got an online store like mine. It depends on your ability to promote your new products, your budget and search engines if you are selling online.
One promotion trap we fell into is to offer free shipping on a $50 minimum order. This ended up being unprofitable after figuring in the cost of shipping and we also found that these customers do not necessarily return.
The golden rule is to be patient, observe how sucessful your products are and learn how you can do a better job next time.
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