As the holidays approach, marketing and operations are strategizing on the various promotions that will entice customers to buy. These promotions will include a variety of discounts like, special buys to reduce ticket price, “family and friends” discounts, and even gift cards with purchase. Now might be a good time to review discount and gift card policies with associates to prevent theft and unnecessary loss of revenue.
Throughout the year, many retailers find associates abusing discounts. Whether the abuse is with their associate discount or extending unauthorized discounts to friends, family members and even “good customers”, discount abuse is prevalent in many retail settings throughout the year. There has always been a “gray area” when it comes to discount abuse. Some hold a strong position and consider it theft; others seem to see it as sales generated and “let it slide.” As we approach the time of the year when you are hoping for the biggest increase to revenue, should you be worrying about discount abuse or be happy with the sales they generate?
A couple of the more common “associate discount abuses” we have seen are:
One of the most common ways associates violate the discount policy, especially during holidays, is through “double dipping” into discounts during a transaction. Double dipping happens in many different ways, such as:
Additional discounts added to an associate purchase
Coupon discounts without having the coupon present
Military/student discounts added to an already discounted sale even though the associate is not military/student eligible
Make sure to implement procedures for informing associates of the discount policy and whether or not additional discounts, like the above, are allowed when using an associate discount. Setting the parameters and being consistent will ensure that your policy has no “gray areas.”
Gift Card “Double Dip” Discounting
Gift Cards have become one of the easiest ways to add discounts for many associates. Some companies offer the associate discount on the purchase of a gift card; however, it is not a good idea to allow associates to tender gift cards during an associate purchase. While this seems like an easy enough transaction to track, associates often “double dip” their discount using gift cards.
For example: An associate receives a 30% discount from their employer. The associate purchases a $100 gift card for $70. The associate then shops and at the time of tender, the merchandise is rung up as an associate purchase (which automatically reduces the sale by the 30% discount) so the associate purchases approximately $143 worth of merchandise, which after the discount, totals to approximately $100, the associate redeems the $100 gift card and in the end obtains $143 worth of merchandise for $70 (the amount they paid for the gift card).
In speaking with companies who offer the associate discount on the purchase of gift cards, they believe it is an incentive for associates to be able to purchase gift cards at a reduced amount. The theory is, associates will purchase the cards as gifts for friends and family, especially during the holiday season. These gift card purchases in turn, will bring additional customers into the stores and generate sales. While this thinking seems logical, is the assumed amount of future business enough to offset the potential loss of gross margin due to “double dipped” discounts?
How to handle discounting
How discounting is handled is up to each retailer to decide; however, the one, and probably most important, practice to follow is consistency. If the decision is made to “stick to the policy”, then you must be consistent and hold all associates accountable for the discounts they process. If the decision is to “let it slide” because the sales generated outweigh the lost profit margin, then everyone with similar violations should be allowed to slide. You should not pick and choose who to hold accountable because you “like them or don’t” or “they are a good performer or they are not”.
Whichever choice is made, it is important to be consistent in how the process is rolled out, monitored, exceptions tolerated and abuses addressed. There is not one “right answer”; there is only what fits your company’s culture. Make your decisions based on how you want to benefit your associates, while also gaining the best possible margin.
Written by Shannon C. Hill, CFI, National Client Services Manager
Related Article: Should we discount Employee Discount Abuse?