April 29, 2014
A friend of mine recently bought a new refrigerator and told me about the many discounts he received on the transaction. I then wondered how that transaction would look if the retailer (or the manufacturer) were to look at the impact of the various discounts in a price waterfall framework. The store was a big-box retailer, and I doubt that they were truly aware of the number of “deals” they were making available for this big-ticket purchase.
Let’s take a quick look at the math:
Standard Retail price = $1,699
– $200 for Manufacturer’s President’s Day Sale discount
-$75 for 5% Dept.-wide sale for Energy-Star Compliant appliances discount
Net price = $1,424
– $142 for Military discount (10% off of net price at cash register)
Invoice price = $1,282
– $50 for Dept.-wide sale for Energy-Star Compliant appliances free delivery
– $25 for Store credit card application, free financing for 12 months (assume 2% cost of money)
– $125 for Loyalty card application with purchase – Store gift card via mail (10% of invoice price)
Pocket Price = $1,082
So after all of the discounts and programs, my friend ended up getting a refrigerator for 36% off of the standard retail price! Not a bad discount for that type of purchase…
As validation, my friend had checked the price with a local appliance dealer re. the same model number, and the dealer advised that if “you can get it for $1,424 [e.g. Net Price since he didn’t know about the Military discount until later], you should buy it” at the big-box store….and that was before several of the further discounts were thrown in….
Getting back to the original question, do you think the retailer fully considered all of the options out there for a consumer to save money (thereby reducing the retailer’s margin) on this transaction? Looking at it from a B2B perspective, are you fully aware of the Pocket Price that your customers see when they buy from you?