The Finest Margins

The delta between success and failure is often a razor thin margin.


In the simplest terms it’s the difference between selling price and cost of goods sold. The greater the margin, the more money you take to the bank at the end of the day. To drive that spread you need to get the most you can at retail with the lowest cost to you.

The key to keeping costs low usually focuses on discounting. Selling five widgets at 20 dollars each gets you 100 dollars in revenue. If you drove those sales by a “Ten Percent Off” discount, in effect, you’re getting 20 dollars from each customer and then turning right around and giving them two dollars back.

For all retailers, this is literally a “cost of doing business”. It gets factored into their financial calculations. But it’s not always necessary. What if you could take the 20 without any giveback?

Right now I’m on the train to New York from Boston. I take it episodically a couple times a month. I know many people who take it religiously every week. They’re on the first train down to New York Monday mornings and they come back Thursday nights. You can set your watch by them.

If I was Amtrak, I would never offer them a unique discount for their routine purchase because they’re some of my best customers. Let me explain. As a goodwill gesture, it has its place. But if they’re willing and able to pay full-price, who am I to stand in the way?

I would, however, offer them companion fares, weekend trips, upgrades to first class…. What’s the difference? They’re all discounts anyway, right?

Not really. Discounting to people willing and accustomed to paying full-price is unwise. It’s margin eroding. Discounting, even steep discounting, to people to encourage incremental behavior is extremely wise.

If I have empty seats, why not sell one for half-price to a valued customer who may want to bring a friend or family member, but finds it cost prohibitive ordinarily? Maybe it will become a new routine? Why not wine and dine in first class in hopes that those perks become required amenities moving forward? I haven’t really given margin away because I wasn’t going to get those purchases anyways. Of course, you have to have supply to make these kinds of offers, but I’ve yet to meet someone in business who did not have greater supply than demand from time to time.

If you aren’t comfortable discounting, which I totally understand, you could do something in the way of a non-financial offer. These “Rail Warriors” are almost certainly part of your loyalty program. Instead of the free or discounted companion ticket, you might try something like “Double Points” with a companion purchase. It could drive the same objective, but differently.

The best part? You don’t have to guess. Over time you can engage each customer individually and see what he or she responds best to.


Say you’re a retailer. You have two customers that buy shoes from you regularly, but never clothes. Maybe for Customer A you try a cross-sell where he gets 20% off shoes when he buys two pairs of pants. For Customer B, you offer her a pair of free shoes when she buys pants, sweater and hat. They have different costs, undoubtedly, but different impacts as well. What they will respond to is largely dependent on their needs, wherewithal and so forth. One size does not fit all.

Now, it may equally be true that the “richest” offer persuades both. That may be so, but is it necessary? If you don’t have to trigger the desired effect with an expensive offer, should you?

Generally no.

So if margin preservation is important to you, think about a personalization strategy that allows you to dole out discounts with an eyedropper, not a firehose.

Your CFO will be happy you did. Your customers will be too. Discounts on things you don’t want, need or that you already have don’t impress. In fact, they usually do the opposite.