Spoiled Customer or How Discounts Change the Market

Going to WalMart I am eagerly looking for red labels with discounts and comparing the discounted price with the regular one. Once the price seems low enough I decide to buy the product. When I come home I understand I do not need the product and I go back to WalMart and return it. I got my money back. I go back home… I am a really spoiled customer like many of us.

Today’s retailers are involved in such ferocious competition that they agree to go lower the bottom line in profit and be in loss just to keep the customer coming and buying. Once the customer is accustomed to regular discounts and returns plus refunds, it’s extremely difficult to do otherwise. If a retailer stops its return program, customers will be outraged and they may simply turn their heads away and switch to competition. So, retailers are facing a spoiled customer willing to have lower prices, to use the product up to 30 days (in Canada) and return it back with the pretext s/he does not like it. Not quite easy to make profit in such a situation…

Still, retailers manage to survive and have good profit. How come? The answer is more than simple: everything is due to the volume of sales and flexible pricing.

First, around 0,02% or less of all buys made at WalMart are returned. This figure is so insignificant and it does not reflect on the benefit at all. Second, the volume is the word: the more you sell with a very small margin on each product, the more you get in profit. That’s why big retailers afford having return-and-refund services and regular discounts…The discounted product sells fast, thus freeing valuable place and storage for other product to come and generate more volume in sales.

Unfortunately, what is good for big retailers is death for small shops, which have to go into niches to be able to survive. Competition with retailers in doomed to loss.