Why discounts might not be the best way to avoid company insolvency

Published on January 10, 2014 by Crawfords Accounting

January is a crucial time for retailers in particular, as several years of high-profile company insolvency headlines collide with the New Year sales season to create a unique set of circumstances.

In similar situations in the past – such as the Christmas shopping season at the start of the recession – many retailers adopted a strategy of heavy discounting to secure custom at any price, boosted further by the reduced rate of VAT that was put in place temporarily.

But while the current conditions may resemble those at the beginning of the recession, consumer optimism is on an upward, rather than downward turn, and that could make deep discounting a greater risk factor for company insolvency.

Research conducted by Experian Marketing Services looks at the US retail sector, but the brand is a global insight provider whose observations are likely to apply equally in the UK too.

The organisation found that only 17% of consumers seek out the best deal as a priority; of the others, many are unwilling to travel to secure a price reduction, and nearly 30% will not normally change their buying behaviour, whether or not they are given a discount.

With this in mind, retailers might want to make sure that their discounts are truly driving sales – and are not simply reducing the amount of profit made from customers who would have bought anyway.

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