Price discounting can be a complex subject, albeit one that will gain in prominence given a variety of economic dynamics, including anemic growth in incomes, continuing “deflationary pressures,” and increasing price competition.
Recently there have been two notable articles regarding discounting. The first is an October 30, 2013 article from Huffington Post titled “Restaurants’ Deals, Discounts Surge.” The next is a November 1, 2013 Wall Street Journal article titled “GM Tries to Curb Discounting.”
Three excerpts from the Wall Street Journal article concerning GM:
“We don’t have to put our truck on sale to sell it,” Chevrolet Global Brand Chief Alan Batey said in an interview on Thursday. “Whether we lose a couple of points of market share in a given month because someone is liquidating isn’t our concern. We aren’t going to get into that dogfight.”
Getting a premium price for its new pickup trucks is critical to Chief Executive Dan Akerson‘s overall plan to lift GM’s profit margins. He wants the company to achieve 10% operating margin by mid-decade, putting it on par with Ford.
GM’s Mr. Batey contends Ford is only pulling ahead its own sales and not taking sales from Silverado and Sierra. Ford officials declined to comment on GM’s pricing strategy.
The article also contains a graphical representation of pickup truck discounts since 2006.
The Wall Street Journal article mentioned above vividly illustrates various notable issues concerning price discounting. They include:
- The difficulty of “escaping” discounting in an industry in which price discounting has been prevalent
- The question of whether discounting “pulls sales ahead”
- The recurring “margin” vs. “market share” conundrum
- Whether wanting to increase operating margin is – or should be – the primary determinant in whether to discount
- Is discounting really needed, or are there other actions or sales methods that can be deployed to offset the pressure to discount?
Other issues that are relevant in today’s price-competitive environments include:
- Is price discounting “worth the money” – or is it in effect “giving money away”?
- What preconditions should exist if a company hopes to successfully employ discounting?
- Is the overall pricing situation changing in the industry, or will it in the near future?
- Even in markets in which price pressures are high, are there opportunities to increase (at least some) prices?
Of course, these issues should be handled on a per-company basis, and as such generalizations are inadvisable. However, given the various economic dynamics mentioned above, as well as the continuing price pressures seen in many industries, these price discounting issues should at least be considered, if not actively acted upon, if they are not already being fully addressed.
ProfitabilityIssues.com is published by StratX, LLC (stratxllc.com). StratX, LLC is a management consulting firm and strategic advisory that focuses on the analysis of current and future business conditions, and given these conditions, offers corporations and businesses advice, strategies, and actionable methods on how to optimally increase revenues and profitability.