90% off, but nobody’s buying

16Aug10

Regardless of how often the marketing department talks about cleaner store designs with wider aisles and lower shelf heights, drug stores like Walgreens and CVS always seem to revert back to a jumbled mess of random stuff. The CVS near me is no exception, and it’s sad to watch the “As seen on TV” items and other junk clog up what was once a clutter-free environment. And don’t even get me started on what the place looks like during Christmas season.

When these stores are gradually filled up with stuff that nobody seems to want, management ends up having to offer substantial discounts to clear out that inventory. In fact, my local CVS had a few bins just like that during my last visit. The bins were marked “90% off”, yet nobody was looking at them or buying any of the products in there. Most people love a bargain, but something wasn’t right here.

This situation made me wonder: does offering a discount beyond a certain percentage actually hurt sales? It actually makes sense when you think about it: normal products go on sale for 10%, 25%, or even 50% off — the latter often taking the form of the classic “2 for 1” deal. But how often do you see a good quality product on sale for 75% or 90% off? It just doesn’t happen very often, so consumers automatically assume the item is of poor quality and not worth buying — no matter how low the price.

So if you’re in charge of determining the promotional strategy for a product, stick to discounts of 50% or less. Otherwise, the pricing strategy may backfire, and you’ll end up with the unfortunate trifecta of lower unit sales, lower revenue per unit, and a stagnant pile of inventory gathering dust on the sales floor.



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