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Discounting in the post Covid-19 world

 

May 20th, 2020

Chris Lynch, CA, Managing Director


Dear all,


According to Research New Zealand, in a new poll, taken online just one week before we entered Alert Level 2 restrictions (New Zealand moved to Alert Level 2 at 11:59pm on Wednesday 13 May) respondents gave a clear message that they were looking forward to regaining their freedom.


Some people have struggled staying isolated in their bubbles and, therefore, it was of no surprise when respondents most frequently said the thing they were most looking forward to doing was:

  • catching up with their friends and family (57%).
  • getting a haircut (33%),
  • going to a restaurant/cafe (30%),
  • taking a trip to another part of the country (25%) and
  • visiting the shops (23%).


A survey from Global Web Index found just a third of New Zealanders said they would shop online more after the outbreak was over, while 27 per cent said they would spend more time browsing or researching online before visiting stores.


A NZ retail expert said New Zealanders were generally a mobile population who used shopping as a social activity. Without consumer pressure, companies had been slow to build an online presence, she said.


We all know that the movement to online shopping and online courses, workshops, services, has placed a lot of pressure on the development of online platforms and has transformed some physical offices and retail shops into virtual ones to give access to clients and consumers to goods and services.


Consumers like discounts -- especially instant ones, according to the 2019 Loyalty Barometer Report from HelloWorld, a Merkle company. Of the consumers polled:

  • 77% crave free products.
  • 75% expect discounts/offers.
  • 66% want free samples,
  • while 57% want free services.


In New Zealand we also need to rebuild the economy and we want to do it fast.


But, how are businesses satisfying the consumer demand without compromising quality or value of product or service?

Many lost their businesses, others are trying to resuscitate activities after shutdown or post-COVID-19.


If you are in business, are your clients and buyers seeking discounts on your products and services? My advice is be careful.


Discounting may be bad for your business not just because of the maths but it reduces the perceived value of your product or service solution. It may also create an expectation that a discount will always be available. We all need to believe in the value of our products and services or understand what happens to our gross profit when we discount. 


Here is an example:

If your gross margin is 20 percent only and you decide to discount your goods or services by 10 percent, you'll need to increase your sales volume by 100 percent in order to maintain your gross profit.

Here below is a table indicating the impact on price discounting Policy on your business.

Stay safe, be kind.


BTW – Your quarterly FBT return is due soon. (see here) Stay on top of your tax obligations so you can get on with operating your business. We'll help sort your FBT return.  

Chris Lynch, CA

Managing Director