My dumb question of the day – “What is and discount and why do they exist?”
Of course, this also begs the question, “What is a mark-up?” And a subservient question, “How does a business remain profitable if they discount?”
A discount, according to Merriam-Webster’s ‘ol dictionary is,” a reduction made from the gross amount or value of something: such as (1): a reduction made from a regular or list price.”
That brings us to the origins of the list price, or MSRP. That’s determined by the manufacturer of a particular component. So why would a manufacturer or a retailer sell something for less than its MSRP? Let me count the ways…
AV manufacturers have been adding more channels and additional formats since the days of the CRT. And as each new specification is added to the AV arsenal, those units that lack a way to make the leap to the new bunch of specs becomes “obsolete.” Since many consumers are perfectly willing to forego the latest Wowie-zowie effects of resolution upticks for the pleasure of getting an AV component that does 99% of what the newest version does, the now “out of date” stuff sells at a discount (often during Black Friday Sales) over the newer models.
Discontinued tech products require deep discounts to get them out of manufacturer’s warehouses and off retailer’s shelves. A vast majority of the “door busters” tech on sale for Black Friday will fall into this category. If a display is not at least 4K, expect to see it discounted. And any portable player or wireless headphone that lacks aptX HD will probably also be among the heavily discounted door busters.
The Manufacturer is Newly Defunct
When a manufacturer closes their doors and orphans their products (in terms of warranty support) you can expect the remaining inventory to experience a deep discount. Even if a product has a short in-service lifespan (like a basic streamer) if there’s no 800 number for support it will not be nearly as desirable as one that does, hence a discount.
Overpriced Compared to the Competition
Yes, even manufacturers make mistakes! Sometimes a product that needed to be a particular MSRP for profitability rams headlong into a competing product that has a lower price and is “eating their lunch.” The options are to suffer low sales or lower the price. Most companies choose the latter course. Some companies, such as Sennheiser and AKG, who usually keep their products in their line-up for multiple years, often lower the MSRP from one year to the next to reflect reactions to competition and new entries into the marketplace.
Had Margins That Were Designed to be Discounted as Part of the Marketing Plan
Many companies rely of discounting to make their products more desirable. While usually the provenance of the “Crazy Eddies” of the world some manufacturers factor in a higher than needed MSRP so that they can allow their retailers to discount certain products to make them seem like better values than the similarly-priced competition. Unfortunately, it often works.
Are About to be Discontinued and the Manufacturer Has Too Many on Hand.
Automotive firms are usually working on new product that will not be released for several years. Audio component manufacturers also work and plan for current and future products, and often know when a product will be going “out to pasture” and try to plan to draw down their inventories in anticipation of the event. But if a particular product is not being emptied from their warehouses at the pace needed to empty them by the time the new replacement is ready, discounting is a time-proven way to free up their shelves.
Intentional Open Box Specials
If a retailer or manufacturer finds themselves with too much of a particular product, another way to get it moving is to discount it due to it being an “open box” “refurb” or “customer return.” Turning a new, undiscounted component into an “open box” is as simple as opening the box and then resealing it. And while this permits a discount, it still preserves the MSRP and “value” of a full-priced version.
Reasons to Be Cheerful?
So, there are seven reasons that a component might wind up on a retailer’s Black Friday deep discount lists. I’m sure there are more, but this gives you the general idea – there’s no free (or discounted) lunches without a reason…sometimes the reasons will have little impact on the final user experience and would still make a savvy buying option. Other times there are very real reasons that will impact the device’s overall desirability and usefulness.
In short, consumers need to factor the why’s of a discount into their buying decision to see if that Black Friday “bargain” is really a good buy or better left as a good-bye…