"There's no rule book"
With over three decades experience building his company from a $500 investment in 1982 to a international firm with over $30 million in annual sales today, Naresh Mehta, managing director of Power Technics, has made the art of the discount at the core of his success. He learned by doing and is an example of the power of discounting.
Mehta's Philosophy of Discounting
"We came up with volume discounts by issuing free product... as an attachment, not a price erosion. A price war is no good for anyone, instead you give extra goods so your distributor makes more margins, and he'll buy bigger volumes. You sustain the product in the market, you sustain the capacity, volume, and market share. That can be a short term 6 months period or 3 months period depending on the type of product."
Mehta believes in only giving discounts when they've been well thought through. His belief in the business power of discounting isn't about simply giving out discounts, it's about using them strategically. He builds discounts into his margins, so he can give a discount and still make a profit. Or, he uses volume discounts to boost his market share. Either way, the idea is to plan for the discount and know what it achieves for you.
"It's all tied up together - you increase the volume because you need to sustain the staff. You first build the staff before you push more volume"
Discounts to Increase Market Share
"There was competition in a market, there was stress and a threat to lose market share. We created a structure whereby we came out with a volume discount... by issuing free product"
One key way Mehta uses discounts is as a short-term way to build market share. Depending on the product, for 3-6 months he will push volume discounts to get his products onto the market. Because of his focus on quality, Mehta is confident that once he gets his product into the hands of customers, he will earn long-term market share.
However, Mehta also knows that the window where this is possible is a limited one. Copycats are a constant threat, so he needs to establish himself before competitors can come onto the market. This early window is the time he uses to build market share, brand awareness, and customer loyalty.
"The bonus is for a limited period of time for you to increase the market share and also to get the product matured and strong in the market"
Discounts to Build Relationships
"The customers or distributors like this perception or ability to get free goods, because it's profit for them... it gives you an avenue to increase volume"
The second main beneift Mehta gains from discounts is the ability to quickly and effectively build relationships with his customers and even his distributors. He understands the appeal of something for free, and that building that free product into his margins makes everyone happy. While many don't think about how such volume discounts affect distributors, for Mehta it means product is moving. It makes him a good customer for those distributors.
In short, Mehta has three distinct tactics he uses when applying discounts:
- Exponential free additional products as a way of increasing market share.
- New products offered as additions along with existing ones to introduce them into the market.
- Point systems to incentivize selling.
By combining these discounting tactics, Mehta has been able to grow his company to an industry leader in Africa and do what many think nearly impossible: manufacture products of the highest quality in Africa.
Can you relate to the stories we told here? How is your experience different? We'd love to hear from you. Your questions and comments are what will help us make better lessons in the future.