Choosing a Bihu Promotion Without Giving Away the Margin
Ritu owns a mid-range apparel shop in Guwahati. A consignment of printed cotton T-shirts has a landed cost of ₹400 per piece and an MRP of ₹999. She is planning a Bihu-season promotion and is torn between 'Flat 30% off' and 'Buy 2, Get 1 Free'. Her monthly fixed costs are ₹1,20,000. She normally sells 900 T-shirts a month at ₹999, and 20% of those customers also buy a pair of jeans priced at ₹1,800 with a landed cost of ₹1,000. Sales staff earn a small incentive on jeans but nothing on T-shirts. In the first week, a customer points out that the poster says 'Flat 30% off everything' while the T-shirts sit under a 'Buy 2 Get 1' board, and demands 30% off a single T-shirt. A salesperson has also been steering customers away from T-shirts towards jeans.
1. Compare the two promotions on price realisation and gross margin per shirt, and recommend one using a break-even test rather than intuition.
Read the worked answer
Flat 30% off: selling price = 999 × 0.70 = ₹699.30; gross margin = 699.30 − 400 = ₹299.30 per shirt.
Buy 2, Get 1 Free: the customer pays 2 × 999 = ₹1,998 for three shirts, so the average realisation is ₹666 per shirt (an effective 33.3% discount). Gross margin = 666 − 400 = ₹266 per shirt, or ₹798 per three-shirt transaction.
The break-even question is how many customers take the bundle. A 30%-off customer buying one shirt generates ₹299.30 gross margin. A bundle customer generates ₹798, but consumes three shirts. The bundle is the better promotion on gross margin per transaction once at least 299.30 ÷ 798 = 37.5% as many customers accept it as would accept the flat discount. In a festive market that threshold is likely to be met, and the bundle also clears three units of stock instead of one.
However, if stock is limited or the T-shirt is a repeat-buy item that customers would have bought anyway, the flat 30% protects margin better per unit. On these numbers, choose B2G1 for stock clearance, and do not run both boards simultaneously.
2. How should the shop handle the customer's complaint about the conflicting 'Flat 30% off everything' poster, and what should be fixed immediately?
Read the worked answer
Honour the lower price for that customer. She relied on the advertised offer, and the cost of one shirt at ₹699.30 rather than ₹999 (about ₹300 of margin) is far smaller than the cost of a consumer complaint, a social-media post, or a consumer-protection notice for a misleading advertisement.
Immediately: take down or correct the 'everything' poster, make the T-shirt exclusion explicit in the same size and position as the headline, and ensure the price board and the POS price agree. Brief every salesperson on what the offer actually covers. Keep a dated price file or photograph of corrected signage, because if a dispute escalates, the shop needs to show what was communicated.
The underlying failure is that the promotion was designed without a single price authority. Before the next sale, one person should approve the offer, the signage and the POS price list together, and staff should be told that a customer's screenshot or the displayed board generally wins the argument.
3. Why are staff steering customers towards jeans, and how would you redesign incentives so that the promotion is actually supported?
Read the worked answer
The incentive is misaligned with the promotion. Jeans earn ₹1,800 − ₹1,000 = ₹800 of gross margin, while a T-shirt earns ₹599 at full price and only ₹266–299 under promotion. Staff are paid on jeans and nothing on T-shirts, so rational behaviour is to sell jeans and treat the T-shirt as a distraction. The shop then advertises a promotion its own team does not want to sell.
Redesign the incentive around the outcome wanted for the season:
- Pay a short-term SPIFF per T-shirt or per bundle sold during the promotion, sized so that a bundle earns the staff member at least as much as a jeans sale.
- Or pay on gross margin per transaction with a bundle bonus, so that a T-shirt plus jeans sale beats jeans alone.
- Track attach rate of jeans with T-shirts and T-shirts per bill weekly, and publish the numbers to the team.
Keep the scheme time-bound to the Bihu period and communicate it in writing. After the promotion, review whether the bundle lifted total gross margin per customer, not merely T-shirt units.