CHAIN REACTION: Margin mass-destruction - BikeBiz

CHAIN REACTION: Margin mass-destruction

Sales aren’t just for January anymore – some seem to run them any time. Mark Phillipson of Bicycle Repair Man argues we should take a careful look at this profit-slashing activity...
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Sale, sale, sale - 40 per cent off this, half price that, at any time of year, we're bombarded with it. You feel you'd be missing out if you didn't jump on the bandwagon. But why do we have ‘sales’? What are they for and do they actually work - that is, do they generate more profit (note, not turnover) than if we didn't have one at all?

My overall feeling about ‘sales’ is that we broadly end up selling the same bikes as we would have done, but at a reduced profit.

Now I'm ignoring here the mail-order/internet wallies, in their sell-and-forget environment, with their never-ending price-slashing. They should hang their heads in shame.

No, I'm talking about proper shops that sell bikes face-to-face. As I've said, there are exceptions and I’ve done deals to get rid of so-called ‘old stock’ - but under guidelines.

Take an ordinary customer; he comes in looking for a bike for himself and maybe his wife. He has vague ideas about a couple of mountain-bikes but will only ever ride on roads and light trail paths. Once you've ‘qualified’ him - hideous sales-speak for finding this last fact out - you then determine his budget and start lining up a nice hybrid for him to try. But wait; if he was thinking of maybe £300 and this bike is in your Sale at £250 reduced from £299.99 then he'll go for it and think no more than ‘Good, I've saved £50.’ Now, if you hadn't reduced that bike, he would have paid the £300 and gone away with an excellent product and happy he was on budget too.

The only difference between the two scenarios is that in one you've lost £50 and in the other you have not. Okay, so selling is rarely that simple and there are many possible permutations. There may be a £350 bike, which is considerably better than the £300 machine, is equally right for his requirements, has the added benefit of being in stock and just turned last year's model. Quite properly, you can sell him that bike for £300.

But, and this has a ‘big but’ - this bike was still on sale for £350. You say “Well, what I can do for you is this model, which is normally dearer, but as it is here and ready to go in your size, I'll let you have it for the same price as the £300 bike, which I don't have in stock in your size right now” (if this is true!). He's gained, you've gained and you look generous too.

Conversely, if that bike was in the sale, it becomes a no-brainer. The customer sees the more expensive bike reduced to £300 and wants it. Only, you might not have it in his size but now he's sold on the idea of the better bike cheaper and may go away and trawl the internet for it, now he knows its make and model.

There are many other possible takes on any given sale but the key balance remains - you retain your margin (or most of it) and the customer gets an excellent bike to suit his requirements.

Of course bike companies also have sales. It would be great if we had just sold all our full price bikes as the sale starts and then brilliantly selected the right number of bikes from the sale to tide us over until the new models arrive. We could then hit the golden jackpot of buying at sale-price and selling at full - at least for a brief period. Sadly, this doesn't happen and usually the sale is announced just after we have bought a large batch at the regular money.

It's easy to be seduced by these sales - just as we try to seduce customers with our sales. We see bikes with a chunk off what we have been paying all year and go mad, ordering loads of stock, tying up precious cash and filling stock space we just don't have. If we looked closer we might think again.

The price may be less than our normal but sale items are usually net - there's no settlement available. Also, the new model coming has a subtly better spec for the same price-point. Then throw in the fact that these sale bikes you are happily thinking of selling at 20 or 25 per cent off are suddenly up against internet prices of 40 per cent off or more.

So what's the verdict on sales? Consider not having them blanket style. Be selective and approach each customer as the unique proposition that they are. Leave the sales bandwagon to DFS. We ain't selling furniture quite yet.

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