02/ 16/ 2005
by Steve Strauss
Q: How would we go about having a sale? I am fairly new to this business stuff.
A: In essence, a sale is a plan that utilizes a loss leader approach to grow your business. The loss leader is a pricing strategy that attracts consumers to your business by offering them discounts on specific items or services that you sell at, or close to, a loss. The idea is that by taking a loss on an individual item, you are leading people into your store with the intent of having them buy, not only the bargain, but also other things from you that are not discounted. Customers may buy the discounted item, or they may not. The important thing is that they are visiting your business.
For example, say that you own a bookstore. By having a sale on bestsellers, you might attract your best customers back into your store. Once they come in, they might find alongside the bestsellers other compatible CDs or some other item, which could compensate for loss on the bestsellers. The loss leads to a bigger sale. Hence the name "loss leader."
So you need to mark down enough items for the sale to be worth your customers' while, but not so many that you lose money. Markdowns are critical to the profitability of your sale. Generally, a product that is less than four months old should be marked down no more than 30 percent. Product that is less than eight months old should be marked down no more than 50 percent. Items older than eight months can be marked down 75 percent. If you have something eight months old, move it; it is taking up valuable space from product that can be turned over again and again. Because sales allow you to convert inventory to cash, be aggressive when pricing old merchandise.
Otherwise, the most important thing you can do to create a successful sale (aside from proper pricing), is to develop your customer mailing list. An up-to-date, good list of even 500 people is far more valuable than, say, an unqualified list of 5,000. Begin your list by asking your regular customers to fill out a preferred customer card. Add them to you list.
Also, see if you can obtain membership lists from local organizations like clubs and churches. Finally, buy a list if you must. When buying a list, make sure that you do not overspend for unqualified names. Be selective, because the list you create will be used to announce the sale.
Before the first day of the sale, you need to get your store ready. Of course you need to spruce things up, but beyond that, be sure to:
- Mark everything clearly with the reduced prices. Make it easy for your customers to buy.
- Put everything out where it can be seen and touched.
- Organize everything and have it arranged by size and category.
During the sale:
- Know that the first week of your sale will always be the busiest. Be sure that you have plenty of inventory and that the shelves are stocked.
- Continue to keep displays full. Customers will not buy if they think the best deals have already been had.
- Watch for slow-moving merchandise and mark it down more if necessary. Something is better than nothing, and space for better selling merchandise beats clutter of old merchandise.
- Create a buzz. Talk about what a great deal this or that is. Have big signs or balloons. Your outdoor "SALE!" signs are vital. Use different signs to attract attention.
When done correctly, your sale can be a very powerful method for growing your business.
