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How to Offer Front-End Discounts and Still Make a Profit

How to Offer Front-End Discounts and Still Make a Profit by Elements magazine | pbahealth.com


May 30, 2017


Sometimes pharmacies have to think like retailers, especially when it comes to the front end.

And, discounting is the top pricing strategy for retailers, according to a study by Software Advice, a point-of-sale (POS) system research site.

For good reason, too. Discounts can benefit your business in a lot of ways.

But many small businesses throw out discounts like free candy, never realizing that they can make the business sick from lost profit.

Numerous factors affect the success of discounts, such as how, what, when, why and to whom items are discounted. All of those choices affect how much discounts dissolve your profit and how much they grow it.

Avoid the pitfalls of lost profit with these discounting tips.

Make a plan

It’s dangerous to cut prices without calculating how it will affect your profit and sales.

Perform a robust review of how discounts will ultimately affect your bottom line. Know your current profit margin, markup and breakeven point, and calculate the best discount price to still make a profit.

Also, create a comprehensive discount plan that targets your goals. Before you discount anything, know what you want to achieve with the discounts—that way you’ll know what items to discount, how long to discount them, and the means of the discount.

For example, if you want to gain customers, you’ll use more aggressive tactics, such as store-wide front-end sales to attract the most number of people. But if you’re hoping to retain customers, you’ll use specialized offerings to encourage loyalty.

Create urgency

Discounts work best when customers think they could miss out.

Label your front-end discounts as “limited time only” or “sale ends soon” to create a sense of urgency. Often, this will prod them to purchase a product they don’t need right now but think they’ll need later.

Discount seasonal or overstock items

Demand for some products fluctuates throughout the year. (Think of allergies in spring, cough and cold during winter and sun care during summer.)

When demand is high, you want enough product on the shelf to meet it. But that can leave you with excess supply when the demand drops.

Discounts can salvage some value for these products if you sell them before they expire.

Place expiring items on a “Clearance” display to attract attention and notify savvy shoppers of a bargain that won’t last long.

Use clever percentages

The Economist covered a study that showed many people don’t fully grasp the math of discounts.

People were more likely to purchase an increase in quantity than a discounted price, even if the discount could save them more. When offered a 33 percent increase in quantity or a 33 percent discount, many participants chose the increase, even though it’s the worse deal.

So, whenever you can, increase the volume of items by bundling them together and marking up the price (but for cheaper than buying two separately.)

People also prefer a discount on top of a discount. For example, customers would more often choose a 25 percent discount on top of a 20 percent discount rather than a single 40 percent discount, which ends up at the same price.

Also, the study showed people prefer getting something extra for free rather than a percentage off. So, buy-one-get-one-free discounts are more popular than 50 percent off discounts (and they move product faster). It’s better to encourage customers to buy two or three to get one free, so they’ll buy more at full price than they would have bought otherwise.

Be strategic with how you discount because customers’ perceptions are more important than reality. 

Offer discounts to select customers

Offering discounts to select customers narrows the discounts, which helps you maintain profit. And, those customers will feel special because they gain “insider” status.

Giving select customers discounts can help your business in a few other ways.

Build loyalty. Provide customers in your loyalty program a discount after a certain number of purchases. The bigger discount they receive, the more they’ll commit to keeping all their purchases at your pharmacy. Receiving a discount will also make them feel appreciated and more likely to stay with you.

Get referrals. Discounts are an effective way to motivate your satisfied customers to refer their friends to your pharmacy. When you gain a referred customer, ask who referred them and send that person a coupon as a reward. It’s a small cost to pay for word-of-mouth marketing.

Support the community. Offer different groups of people discounts at appropriate times. This will convey your care for the people you serve and build your pharmacy’s brand in the community. For example, during Older Americans Month offer seniors a one-time $10 discount to celebrate them. 

Arrange discounted items strategically

Have you ever noticed the layout of grocery stores? For example, at Costco the fresh food and produce are in the back of the store. And, high-priced items like electronics and jewelry are at the front.

Costco knows that most of its customers are going to buy food and produce. Placing those items at the back of the store forces traffic through the rest of the store to show off other products along the way and entice customers to purchase more.

Consider this type of layout for your pharmacy. Place discounted items (if they’ve been advertised) in strategic places in your front end to expose customers to other products.

Also, place a full-price complementary item next to a discounted one, such as a full-price bottle of conditioner next to the same brand of discounted shampoo.

Maximize marketing with discounts

Front-end discounts are an effective way to gain valuable customer information for marketing. And the money you lose through the discount can be considered a marketing expense, which can generate more money in the long run.

Make sure you get the most customer information possible through your discounting strategy. And, encourage customers to market for you.

For example, offer discounts to customers when they:

 

Give discounts and get profits with these strategies for your independent community pharmacy. 


 

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