Know-How Exchange : Customer Behavior

Dear beal_asuncion15,

What's your mark up? You're in business to make a profit, but you also have overheads. Once you've paid your overheads, what profit margin do you set as an ideal: to sustain your business, to put money in your pocket, and to allow for growth?

If the discounts you're receiving are on wholesale prices, the choice on whether or not to pass part of those savings on to your customers depends on what you're selling, to whom, and at what mark up.

You also need to bear in mind the ways you want to be perceived by your customers.

Do you want to be seen as the discount person?

Or do you want to be seen as the purveyor of premium products?

If you want to be seen as the discount person, be aware that you'll only ever attract people who are looking for bargains. This means you'll have stiffer competition from sellers willing to charge less in order to attract your customers on price. Your response to this would then be to reduce prices even more to compete.

The downside here is that you then enter a downward bidding war until no one is making any money and you're both driven into the red. Not good.

For premium products, you create an air of luxury, which means your goods attract luxury buyers, most of whom have higher levels of disposable income. These people are inoculated against price: they pay for quality and name recognition, they pay to be seen with premium goods and labels because they have a reputation to maintain, or because they seek status.

For customers like this, it's possible to charge more—even if you're getting wholesale discounts—which means your profit margin expands, thereby giving you enough capital to buy more wholesale to sell to similar (or multiple) markets.

It's always tempting to pass on discounts to customers. But ask yourself how much can you afford to pass long and how long do you want to do this?

I hope this helps.

Gary Bloomer
Wilmington, DE, USA

in my experience, customers want to feel they are getting a special deal. This can be a discount, but it can also be special service, or faster delivery, or a special guarantee, or even a gift.

I agree with Gary that you need to look closely at your profit margins as you plan your strategy.

Good counsel above.

Just a thought, without really knowing what it is you are selling: It costs you less to give a "bonus pack" than to give a straight discount. Example: Buy 4, get a fifth one free. That costs you less than just giving a 20% discount, because that "free" fifth one only costs you the wholesale price, not the retail price, yet the customer saves the full retail price when he/she gets it free.