Everybody loves discounts. Well, everybody except maybe the accountants and order managers at the companies offering the discounts. They’re the one’s who have to deal with what can often be cumbersome back-end challenges related to managing promotional pricing. But hold that thought for a moment.
First, what is it about a discount that is so irresistible to customers?
Consider Black Friday, for example. Sure, plenty of the promotions provide real savings. But everybody knows that a lot of the deals are really just products with inflated list prices adjusted down and advertised as a limited-time sale. Knowing this doesn’t slow buyers down much, though, does it?
A couple years back a New York Times article examined a fascinating example of the curious hold discounts have on the consumer mind. J.C. Penney has long been known as a discount retailer. In 2012, chief executive 2012, Ron Johnson, announced that J.C. Penney would move away from the mark-it-up/mark-it-down discount game toward an “everday” low price model. Overall margins wouldn’t really change—moreso the presentation of pricing.
The results were not positive. Without the “savings” context provided via advertising discounts, customers stayed away. Sales dropped by 25% in 2012 and the J.C. Penney board ousted Johnson in 2013.
Discounts are a time-tested approach to winning new customers and motivating existing ones to buy more. The thrill of hunting down savings feeds our brain’s reward centers and the influence of the scarcity principle (limited-time only!) drives us to take action and buy.
So why do many companies choose to avoid discount programs? One of the biggest reasons is that discounts are often a pain from a business management standpoint. Discount programs can create administrative challenges across multiple departments, encumbering order management, invoicing, and accounting processes.
Offering a discount might seem like a simple task. But extending even a simple discount means coming to grips with the who, what, when, where, how often, and how much aspects of administering the program.
Without automated controls for coordinating discount management, any number of business issues can occur:
- Manual application of discounts can open the door to accounting errors.
- Overall efficiency can suffer due to confusing and unfamiliar workflows in sales and accounting departments.
- A lack of easy-to-produce, standardized reports can make it hard to tell which programs are inspiring more sales versus simply cutting into the profit margin.
Promotions management software products help businesses more easily administrate everything from gift cards to rewards/loyalty to sweepstakes promotional programs.
For small and mid-market businesses just looking for to dip their toes in discount management automation, a percentage-off based discount program serves as a logical entry point. The accounting and order management features in many business management systems may even be up to the task of supplying the necessary functionality to run an effective discount program.
Asking accounting software vendors the following 25 questions will help qualify whether their solution will support your discount management requirements, or whether you might need a more robust promotions management product for the task.
Basic Discount Management Questions
1- Can I apply discounts to both invoice line items as well as to the overall invoice?
2- Can I automatically apply discounts based on the quantity of a particular item purchased?
3- How do I flag particular products as discount eligible?
4- Can I ensure that only certain employees are able to set up discount programs?
5- Can I preset the eligibility dates for discount programs?
6- Can I set discounts on a customer by customer basis?
7- How does the software ensure that customers are refunded the discounted rather than full item cost in the case of returns?
8- Can I allow for custom, ad-hoc discounts when invoices are created?
9- Can I discount based on the method of payment?
10- Can I discount based on the speed of payment?
Advanced Discount Management Questions
11- Can I automatically apply discounts based on the quantity of a particular type or class of item purchased?
12- Can I create and save a discount program for future use?
13- Can I configure the to system suggest discounts during invoice creation without automatically applying them?
14- Can I create customer-specific discounts based on the amount they have spent during the last year or other time periods?
15- Can customer-specific discounts be set up so only particular product lines are eligible?
16- Can I limit the maximum discount based on percentage, cash value, or the number of discounts used at once?
17- In instances where a customer has overpaid because they didn’t recognize the availability of a method or speed of payment, can I automatically credit a customer account for the amount of the overpayment?
18- Can I suspend customer discount eligibility in cases where customers have other unpaid invoices?
19- Can I create accelerating percentage discounts based on the cash value of the order?
20- Can I set a maximum number of total or per customer units that can be purchased within product-specific discount programs?
Discount Program Reporting Questions
21- Can I report on sales activity that utilized a particular discount?
22- Can I compare product sales activity between periods in order to gauge the effect of discounts?
23- Can I create return-on-investment calculations that determine net profit on a discount program by subtracting discount administration costs from generated sales revenues?
24- Do the discount management reporting tools include dashboards or graphical features to make it easy to share program results?
25- Can I filter discount program sales activity by customer attributes or demographic info to understand who is utilizing discounts that have been offered?