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Comparing savings, specials and discounts

Jul 11 2017 17:06

Cape Town - During a slow sales period, a common business practice is to provide discounts, loyalty offers and bulk-buy pricing to move products and services, attract new customers, and reach sales targets.

While this is frequently the case in retail, it’s also a key element of tourism businesses and operators - especially during the quieter low season - says Enver Duminy is CEO of Cape Town Tourism.

"It’s a strategy geared towards ensuring ongoing income, employment sustainability and that the business endures. Done well, it can maintain a steady stream of profitable business. When done poorly, it can have a negative impact that threatens businesses."

Discounting

Scale is a consideration and a large enterprise will have specialists with the financial skills to deploy a strategy that will see discounted business effects spread widely across the company. SMEs, on the other hand, are far more sensitive to even slight adaptations in pricing and in market activity.

SMEs, too, may not have an individual with specialised financial knowledge to calculate potential gains or losses according to changes in what’s on offer, says Duminy.
 
The basic principle of discounting – when marking down products or services – is that you need to sell more to achieve the same levels of profitability, taking into account operating costs and ensuring that discounting doesn’t lead to a loss.

This can be done as a stand-alone strategy or combined with increased awareness via marketing of the discount (bearing in mind that this marketing will also have an impact on profits) or in conjunction with a loyalty programme that encourages more frequent use of products or services.

Building loyalty in quiet times

Loyalty programmes rely on a large consumer base in order to perform profitably. An example could be the Marriott Rewards loyalty programme, the world’s biggest, with more than 100 million members and a million new ones every month benefiting from pricing premiums.

Not only do members benefit, the hotel group is put in a strong position: provided that the rewards are incentive enough, their customers will keep coming back.

"In the case of business travel, this is an important consideration. Elite members on the MR programme travel between 25 and 100 bed nights per year – a phenomenal number that showcases how effective loyalty programs can be within the right context," says Duminy.

"A pitfall that may be experienced for such large enterprises is that all aspects of the business must be aligned with the business strategy, from having sufficient products to meet the demand to ensuring that workforce management has the capacity to deal with potentially large interactions during sales periods."

Cape Town-based contact centre specialist Wynand Smit of INOVO, agrees.

“Attractive offers such as massively discounted airfares achieve their objective, with the market responding in great numbers. What has been experienced, however, is that the contact centres and websites dealing with increased traffic may not have the capacity to cope with short-term, high-volume interactions," says Smit.

"The capacity to cope with this must be worked into the business strategy, right down to workforce management tools that allow for adequate staffing during peak times, based on monitoring from previous sales campaigns. In addition to sales, companies must remember that increased sales will, in turn, lead to more customer service interactions.”

Competitive activity will always have a place – businesses must seek ways of standing out from their competitors. Undercutting pricing can do this, but the question must be asked, is this positioning your brand as a discount brand?

Even in slower business periods, some consumers remain content with paying for luxury.

Partnerships for mutual benefits

An antidote to being competitive is partnering with other companies to reach more customers. This could be by adding value to existing products and services: a free tour in conjunction with a hotel stay, or a wine tasting as part of a restaurant experience with wine farms coming on board to market their blends.

An example would be the Love Cape Town City Breaks campaign, which is geared to attract more visitors to Cape Town during the quieter period.

Another option is to create events during quiet times that generate interest and provide access to an entirely new market. Conferences, festivals and other events can be conceptualised, and these, in turn, may benefit from reduced costs from suppliers and venues and more likelihood of venues being available than in peak season.

Limiting risk is essential, but it is also imperative that the customer experience not be compromised. At all times, busy, high season or in quieter times, the customer must have excellent experiences based on service delivery according to their expectations so that they remain loyal.
This long-term view will mean that there remains the opportunity to expand your business by attracting new customers from a wider consumer base, says Duminy.

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