Since I am from India, I love to blog sometimes about state of entrepreneurship/business in India.
India as a country has been price conscious from many years. Due to lack of purchasing power which existed some ten years back ( before liberalization that is ) , the price is still a very sensitive matter.
These days if you open any daily newspaper published in a major Indian city, you will find that there is a discount mania all around. Normally discounts are offered season wise and for a limited period. The purpose of discount is to jack up sales in a short term without actually classifying a brand as a discount player in the long term . The discounts helps clear old inventory or attract customers to new offerings.
However in India, discounts are running for a fairly long time. In garb of different seasons, they are rotated again and again. If you observe, the discount logo is sometimes 50% bigger than the brand logo.
One interesting thing on the side of the discount logo is a small hidden word ‘UPTO’. It is a smart word which actually hides many things as it says. ‘UPTO’ means that discount ranges from 0% to around 70%. An item can fall anywhere in between this range of discount. The discounted items, many times are not in great condition, practically unsold till now and waiting for removal before arrival of the new stock.
There is not a single sector that is unaffected by this mania ( most for retail and apparel). I have seen people walking into a luxury goods shops and asking for a sale. It is not necessarily a bad thing but it has altered the mentality of the people across the country. The focus these days is only on ‘Great deals’, ‘bargain deals’ and ‘offers’ with a complete disregard to the quality and the service offered. Now there are even websites offering deals to club offers and provide great bargains to the customer.
It is not necessarily a bad thing to offer discount as way of increasing sales or attracting customers but to make it the mainstay of sales is disastrous in long run for both businesses and consumers. Consumers in India do not have a habit of paying for the services. According to them services should happen for free. I too have been guilty of that till I entered the service business. For e.g. if you want a furniture delivered to you house, you want it for free. However,it costs the business something to transport the furniture,looking at the cost of transportation ( vehicles, employees, petrol etc.). A supplier then adds this cost to the cost of goods and then adds a margin to that. The result is that we end up paying more than what we should have paid. Cost of goods + cost of transportation. The end result is higher price for everyone and increased inflation. However there is not much hope of a change because suppliers do not want reduced sales (they did not promise free delivery and hence customer walked away) and customer being totally uneducated about how costs are stacked up.
I believe it is the job of business to educate the customer and provide them with the benefits of lower cost of goods. In other countries services is charged separately from the price of goods ( most of the time), making it really easy to understand the pricing. Many a times, customers bring their own transportation vehicle to pick things up. Businesses here will have to explain to customers that believing services is free is not in their interest .
Coming back to discount of goods sales. Discounting is a bad idea in the long run because it decreases profitability, reduces focus on other attributes such as quality of delivery or workmanship and creates permanent discount mentality in customers. Even if someone wants to increase prices because they want to provide a good service cannot do so.
Once I went to purchase a camera from a shopping mall. It was priced around Rs. 1000 ( $20) less than that offered by a small shop. Then I decided to visit the small shop. The shopkeeper was an avid photographer and he personally took one hour to explain me the features of the camera and also gave me the tips about taking a better photograph. It was because of this value addition, I decided not to go for the discount offered by the mall but take the camera from this small shop. The shop owner gave me his visiting card and offered that I could call him anytime to get some more tips and ideas . To me the value offered was greater than 20$ as a class on photography would cost $75.
Instead of discount, if businesses offer value to the customer and make them see it, the sales can be much much higher than imagined.