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Role of Discount in Retail Business


The issue is being discussed and debated several times in many businesses.  Discount is a tricky thing especially in the retail business.  In order to understand the factors that affect discounts let us take a sharp look at how retail works.

Various companies select distributors in a particular geographic area for distributing their products. These products are given to the distributor after adding the company profit over manufacturing and supply or transportation cost.

Distributors distributes the same goods to the retailers at a  price set for the distributors, which includes a profit over the purchased goods. In every product you can find MRP or maximum retail price. When a good is sold by the retailer, the price should never exceed that of the MRP. But MRPs are the maximum price that retailer can take from the customer. A retailer’s profit is added over the distributors price and a retail price is derived which is always lower than MRP. But when you purchase a good in the shop, more often or not you end up paying the MRP to the retailer.

One common word that you hear from retailer when you ask for a discount is “we offer best quality. Therefore kindly do not ask for any discount”. Is it true? By default, a retailer is not manufacturing any good and therefore the quality that he serves you depends upon the good manufacturer and not the retailer.

In some of the major Retail outlets you get discounts on many items. The so called discount is not at all  a discount and they are selling to you at a price which is retailer’s price and which is lower than MRP, as it always should be.

Now what are the pros and cons of such discounts? In day to day life savings of some pennies or even a dollar on goods may not seem too heavy on your pocket but add that for a period of time and the amount is not less than significant.

If you are planning to start a retail shop, this is one area that you can really target at. Determine the products where MRP is much higher than the retail price of the product. Selling the product on Retail price rather than on maximum retail price does give you an edge over other competitors. Although a common business thought clearly suggests you to avoid giving any discounts, it pays off.

When you start giving a “discount” over MRP  in most common items, you lose some pennies in profit. But a customer comes to know that goods in your shop might be cheaper than the other places. So you create a customer base which becomes an important business asset in longer run. You can always  revive your selling strategies if that does not work out! But in a world of utmost competence, your plan and ethics plays a very important role. Just consider the profit you are leaving out as an advertisement cost. Though in retail, advertisements are never as aggressive as in some other businesses but there is an advertisement and marketing issue associated anyhow.  The more aggressive your reach to the customers, the better your business visibility is and the better your profits are.

In a world of business where Gaining and Retaining customers plays such an important role, small steps like selling on retail price rather than MRP and terming it as a discount may win you many battles and barriers.

Give it a thought and give it a go. Who knows, your shop or retail business may get a “zoom”

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