In Lyndon’s world, the primary goal of business is to make money. This is not to say that there are not other factors important to business, but without this fundamental objective, you cannot sustain the rest of your goals. As I was chatting with a customer recently, he told me a about a client of his that always bought wine by the case in order to get the case discount. I began to see this common trend in the business that ultimately became the expectation from every consumer entering a retail store. The industry standard throughout retail wine is to offer a 10% or 15% case discount. I have some problems with that case discount and so should you! Below are three business models one could use when selling a case of wine. First we’ll discuss the offers and then jump into the “discount model”, the “free goods model”, and the “customer retention model.”
When offering a discount the intention is great, but the overall effectiveness is questionable. Let’s spend a second looking at how “offers” work. “Offers” are a basic sales tool to lure customers to act in predictable ways, ways we like as retailers. Examples of some offers are a “one day only” sale or “spend $100 and receive free shipping.” These offers encourage customers to buy immediately or spend even more. We can use offers to get our customers to act in predictable ways which we can benefit from.
Here is how the discount model works. You sell a case of wine at $200 then you offer a 15% discount, so your total revenue is $170. My heart is breaking, as you just gave away $30. Cut that shit out.
Let’s try another model. Sell the same $200 case and have your offer be a free bottle, call it the “wine bakers dozen” or “13th bottle FREE.” In this scenario you are only out the extra cost of goods, say around $10 (assuming a 1.5 markup). With the tight margins retail operations work on, a 9% swing is significant. The difference in profit is $18 between the discount and free models. The perceived value to the customer is the same in the two models, as a 15% discount is roughly the same as a 13th bottle on a 12 bottle purchase. There a couple other advantages as well. You, the retailer, get to move a thirteenth bottle out of inventory, which unltimately increases your velocity and improves your buying power. You can also use the word FREE, which is a very powerful word and I like it much better than discount. I know your customers will too.
There is another option, which is a hybrid between the first two models laid out which can really increase sales and customer retention. Your offer in this model is to give a $20 or $30 coupon on the next case purchase to your customer. Now you have given no discount, offered only free additional goods and guaranteed another sale of a case when the customer returns for another purchase. This offer is not as attractive to as many customers, but if you know your customers, you will know to whom this will interest. This model is really good for the wine business as customer service and retention is how a retailer will ultimately stay in business and/or be successful.
In conclusion, try offering free additional goods to illicit predictable responses in your customer base, instead of offering discounts outright. If you are not comfortable making a complete switch, try it as a one day promotion every month. Maybe something called 13 on 13, which you can offer on the thirteenth of each month (I’m looking at you April) and then see how it goes.
OK, retailers, don't be a jackass on your back.
Oh, and I’ll take a cut……….