S ome experts say General Motors Corpor- ation’s (GM) summer campaign that offered employee discounts to car-buying consumers was a stroke of genius, but others argue it was an act of desperation. GM posted a $1.1 billion loss in the first quarter of 2005. The employee-discount promotion helped increase the automaker’s U.S. sales for the month of June by 41 percent nationally, GM’s best sales month in 19 years. GM’s com- petitors, Ford and Chrysler, were forced to follow GM’s lead and offer their own employee-pricing promotions, a move that goosed summer car sales to record levels. Did It Work? It sounds like a successful campaign, but was it? No one doubts customers loved it. They flocked in record numbers to American car dealers in what is traditionally the slow season for car sales. Employee discounts are perceived to be the highest possible discount. GM’s overstock of 2005 vehicles was drastically reduced, and dealers’ lots were filled with newer trade-ins to sell. GM’s car sales actually increased the national retail sales figures by 1.7 percent for the month of June. But in spite of the promotion’s apparent success, dealers grumbled and some analysts insist the car manufacturers didn’t attract new customers. The net effect was to shift sales the car dealerships expected in fall to earlier in the year. Yes, this cleared out bloated 2005 inventories but at the cost of future, higher-margin sales. Still, the employee-discount promotion rocked the retail world, leading retailers nationwide to question, “Is there something to it?” The Appeal What was the huge appeal of an employee-discount offer? The discount was large, but similar discounts, when labeled back-to-school sales, clearance sales, etc., don’t cre- ate the same fervor. In the wake of the auto dealers’ promotions, a host of other retailers have tried to duplicate the promotion. Everyone from CompUSA and Staples to local bicycle shops seems to have jumped on the employee-discount bandwag- on. The question is, should garden centers? Can It Work For You? Lawn and garden retailers can — and do — take pro- motion ideas from large corporations and tailor those ➧ F EBRUARY 2006 L AWN & G ARDEN R ETAILER 63 Employee- Pricing Promotions It seems car makers found success by offering employee discounts to customers this past summer. What are the pros and cons of adopting a similar promotion at your garden center? By Lisa Anderson Mann PROMOTIONAL STRATEGIES The employee-discount promotion helped increase GM’s June 2005 U.S. sales by 41 percent, but some analysts feel no new customers were attracted. (Photo courtesy of iStockphoto.com)
Transcript
Some experts say General Motors Corpor-ation’s (GM) summer campaign that offeredemployee discounts to car-buying consumerswas a stroke of genius, but others argue it wasan act of desperation.
GM posted a $1.1 billion loss in the first quarter of 2005.The employee-discount promotion helped increase theautomaker’s U.S. sales for the month of June by 41 percentnationally, GM’s best sales month in 19 years. GM’s com-petitors, Ford and Chrysler, were forced to follow GM’slead and offer their own employee-pricing promotions, amove that goosed summer car sales to record levels.
Did It Work?It sounds like a successful campaign, but was it? No one
doubts customers loved it. They flocked in record numbers toAmerican car dealers in what is traditionally the slow seasonfor car sales. Employee discounts are perceived to be thehighest possible discount. GM’s overstock of 2005 vehicles wasdrastically reduced, and dealers’ lots were filled with newertrade-ins to sell. GM’s car sales actually increased the nationalretail sales figures by 1.7 percent for the month of June.
But in spite of the promotion’s apparent success, dealersgrumbled and some analysts insist the car manufacturersdidn’t attract new customers. The net effect was to shift salesthe car dealerships expected in fall to earlier in the year.Yes, this cleared out bloated 2005 inventories but at the costof future, higher-margin sales.
Still, the employee-discount promotion rocked the retailworld, leading retailers nationwide to question, “Is theresomething to it?”
The AppealWhat was the huge appeal of an employee-discount
offer? The discount was large, but similar discounts, when
labeled back-to-school sales, clearance sales, etc., don’t cre-ate the same fervor.
In the wake of the auto dealers’ promotions, a host ofother retailers have tried to duplicate the promotion.Everyone from CompUSA and Staples to local bicycle shopsseems to have jumped on the employee-discount bandwag-on. The question is, should garden centers?
Can It Work For You?Lawn and garden retailers can — and do — take pro-
motion ideas from large corporations and tailor those �
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EEmmppllooyyeeee--PPrriicciinnggPPrroommoottiioonnssIt seems car makers found success by offering employee discounts to customers this past summer.What are the pros and cons of adopting a similar promotion at your garden center?
By Lisa Anderson Mann
P R O M O T I O N A L S T R AT E G I E S
The employee-discount promotion helped increase GM’s June 2005 U.S. sales by 41 percent, but some analystsfeel no new customers were attracted. (Photo courtesy of iStockphoto.com)
*promo-empl pricing 1/25/06 9:02 AM Page 63
promotions to their needs. Someexperts suggest a sale like GM’semployee-discount promotioncould be even more effective forlocal or independent businesses.“Family” or “insider” promotionscan be more believable when
offered by a local business and canhelp cement local loyalty, too.
Following the car dealers’ lead,Moana Nursery in Reno, Nev.,offered its 30-percent employeediscount to customers for a weekin late July and early August. The
store advertised the sale in its reg-ular weekly newspaper ad, with anotice on its bulletin board and inan E-mail newsletter sent toapproximately 10,000 customers.
“It was one of the most effectivesales we’ve ever had,” says Julie
Muhilly, Moana Nursery’s managerof garden specialties. “It came dur-ing one of our slowest times of theyear — it’s very hot here then, andpeople are on vacation or are pret-ty much done with their gardensfor the season. And we had 15 daysof 100° F or hotter in July andAugust. But the sale really broughtpeople in.”
Muhilly says unlike the car deal-ers Moana Nursery didn’t see adrop-off in sales after the eventended. “We carried the customerincrease for a couple weeks afterthe sale ended,” she says. “It was afeel-good event for our customers;people really liked it.”
And although Moana’s marginson some lines — like Smith &Hawken — are tight enough tomake an employee discount some-what difficult, Muhilly feels thesale was profitable overall. “Wewould definitely do it again,” shesays. “We have a pretty old cus-tomer base; we’ve been in thislocation for 38 years. We knowmany of our customers by name. Ithink this kind of sale reinforcesthat local connection.”
A Double-Edged Sword
One theory on why employeediscounts work is that they makepeople feel special — the discountis offered to insiders; therefore,the customers feel like they arenot being offered leftover or infe-rior merchandise. Which, in turn,creates some inherent conun-drums — will a sale designed toreward insiders draw new cus-tomers? If the discount is offeredonly on overstocked merchandiseor lines with high margins thatcan be comfortably cut, will itcheapen the offer — or seem likea bait-and-switch scheme — in thecustomers’ eyes?
If favorite customers perceivethe sale as a hoax it could unravelthe strong relationships already inplace. And if a promotion aimed atmaking consumers feel like insid-ers doesn’t draw new customers,will it mean — like GM — simplyreplacing later high-margin saleswith quick, low-margin ones?
Michael Cox, a Piper Jeffreysenior research analyst specializ-ing in the lawn and gardenindustry suggests that, becausegarden center sales are so weath-er dependent, an employee-dis-count program would be mostbeneficial if the weather were �
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poor or during a slow season —much like Moana Nursery’s tim-ing. “During the season, if youhave a sunny Saturday, peoplewill come in whether there is aspecia l deal or not . Offer ingheightened discounts then willjust take a sl ice off your mar-gins,” explains Muhilly.
Apples And Oranges
While cherry picking successfulevents or offers used by otherretailers is a solid strategy for suc-cess, the auto manufacturers’ dealshad aspects that don’t apply tomost lawn and garden retailers.
Some of those differences maybenefit lawn and garden retailers:Unlike big-ticket items like cars,there are plenty of impulse itemsin garden centers. People aren’tlikely to buy a few additional carsbecause the discount is good, butpicking up a garden ornament ora few more flats is pretty easy andaffordable to do. Therefore, thiskind of promotion could conceiv-ably generate enough incrementalsales to help offset lower margins.
Additionally, car buyers are notlikely to return to the dealershipnext month just to browse.“Increased traffic almost alwayshelps us,” says Muhilly. “Lookingaround sparks ideas or just gets
people excited about their gar-dens again. The effects lastbeyond the sale itself.”
Other benefits of the car manu-facturers’ summer promotionsdon’t apply to most lawn and gar-den retailers: The appeal of no-haggle sales, for example, was oneof the attractions for car buyers.Also, cars are large-ticket purchas-es, so the discounts are viewed assubstantial. While a 30-percent dis-count is a good one, 30 percent offof a 20-dollar sale probably won’tinspire someone to drive to aneighboring town to shop. Andfinally, the auto manufacturershave stockholders who need to besatisfied in the short term, even ifthe long-term effects for the busi-ness are poor, something mostlawn and garden retailers don’tneed to contend with.
Do The MathAnother thing to be cautious of is
long-term effects. GM, Ford andother large corporations may havedeep enough pockets to recoverfrom a single marketing blunder.A small company may not.
“You can be too successful,”says Peter Koeppel, president ofKoeppel Direct, a direct responsead agency in Dallas, Texas. “Youcan build traffic tremendouslyand do a lot of volume, but if
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you’ve structured the offer badly— or cut your profit margin tooclose — you can actually lose
money on each sale. And whatlooks like a huge success can actu-ally damage your business faster
than not doing any-thing at al l . Thosewho advertise or pro-mote aggressivelytend to be the mostsuccessful retailers —so I’m not suggestingthe do-nothing track,or course. But youshould really do themath first.”
Eugene Fram, J.Warren McClureresearch professor ofmarketing at Roches-ter Institute of Tech-nology, agrees: “Manydifferent retailers arejumping into theemployee-discountpool, but no one real-ly knows where thecurrents will takethem,” he says. “Theminute you start ad-
vertising a discount, you’re cuttinginto your profit margins, andyou’re inspiring your competitorsto do the same. You could findyourself in a price war that will behard to get out of. Long-term orfrequent discounts can set up anexpectation among your cus-tomers that you’re a discountoperation, and unless you canactually buy your goods at a deep-er discount than your competi-tors, you can easily put yourself ina position you may not be able toafford to stay in.”
Plan CarefullyAs always in building business,
there are no easy, one-size-fits-allanswers. Can an employee-discountpromotion increase traffic, makeyour customers feel good andpump up revenues? Absolutely.Can an employee-discount promo-tion cut profit and hurt you in thelong term? Possibly.
With careful planning, a solidknowledge of customers’ buying
patterns and doing the math(and checking it twice), you maypull off your most successful dis-count promotion ever. Or, youmay decide to back away frommarketing that relies heavily ondeep discounts.
“The most successful retailersare those who see a promotion —especially those in other industries— and think ‘Would that work forme?’” says Koeppel. “It’s notwhether you actually copy everysuccessful promotion you see; it’sthat you think that way.”
Lisa Anderson Mann is a freelance writerbased in Petaluma, Calif. She can be reachedby E-mail at [email protected].
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LearnMore!For more information related to this article, go to www.lgrmag.com/lm.cfm/lg020608A sale that gives your employees’ discount to customers may
