Who's to blame for product discounting? Tim Wallace talks to kitchen and bathroom retailer Bill Pnaiser of Junction 2 Interiors in Birmingham (left), and Colin Richardson, UK agent for shower specialist HSK (right)...

Q: Is discounting inevitable, particularly in a tough market?

Colin Richardson: We don't like our people discounting unnecessarily, but it takes big money to run a nice showroom and if somebody with buying power sets up on the web round the corner you're competing against zero overheads. The internet boys are causing retailers more problems than showrooms are causing each other. 

Bill Pnaiser: We trade on the internet as well. 

CR: But do you trade on the internet at discounted prices to what you sell in the showroom?

BP: Yes because let's face it, if anybody wants to buy anything these days they go on the web to find out who's the cheapest dealer. Look at LF Bathrooms who've just gone into liquidation.

They were giving 40% off Heritage with free delivery. Manufacturers are sitting there letting them do it rather than using their common sense and realising people like myself, who do the job properly, are being penalised. We have to match them on the internet or we won't sell it. Manufacturers are taking liberties. 

Q: Is discounting a good or a bad thing for the industry?

BP: Sensible discounting is good but I hate things like comparethemarket.com, which encourages people to ask retailers for discounts. When people start giving stuff away for low margins, it becomes ridiculous and it affects the more established, responsible retailers. 

Q: What would you describe as sensible discounting?

BP: Everyone has to work out what it costs to run their company. Most businesses need between 15 to 20% margin to survive.  

CR: The trouble is retailers are faced with huge bills and get desperate; they're panicking. When you go in a small showroom that only has six or seven displays and is working off the Frontline brochure for example, the showroom manager will sell almost anything to keep themselves in business. 

Q: What sort of problems does discounting cause you?

BP: In an ideal world, nobody wants to give a penny off. But in the real world, we sell a £25,000 kitchen, make a 30% margin, then find the customer can only afford £20,000. What do you do then? Do you cut your margin or tell them to go away? We've had to take a three or four grand hit. The end-user is being educated to come in and ask for a discount. That's the biggest problem. It's like buying a car.  

CR: Yes, a lot of manufacturers are looking for a win-win situation. It reminds me of my local garage offering a free MOT for life - I bet there'll be loads of things wrong with your car when it goes in. Customers are being had. 

BP: Yes, but that's good marketing. Loads of people would go for that. Look at the queue of cars on a forecourt even if they're only offering a 1p discount on petrol.  

Q: Has HSK tried to control showroom discounting?

CR: No, we just try to control the RRP. We offer distributors a discount, and in some cases more than 40%. We have a display tier structured discount and in some cases we can apply a 90% discount, if they have six displays for example.  

Q: Does it frustrate you to see HSK products being sold cheaper than you'd recommend?

CR: I see that more with the internet providers. We've stopped dealing with some website dealers altogether. 

Q: But is that legal? Could you be accused of price-fixing?

CR: We've said to them, 'you've got something wrong, you're selling at less than the price that we sell to our distributor'. 

BP: But legally you can't stop someone from selling at any price they want to. You're on dodgy ground there. 

CR: We can't stop them but there's more than one way of skinning a cat. 

BP: Are you telling the retailer that they can't sell your product at 30% off? You just said you stopped a few internet dealers doing it? 

CR: No, I'm not. As I say, there are other ways to stop them. 

BP: Yes, either you don't supply them, delay the supply or reduce their credit, but legally you can't stop them selling your product. If the retailer can prove you're doing that they can take you to court.  

CR: I'm talking about the backstreet guy where it's causing a problem in the market. My customer is the distributor, so legally I can't stop the retailer from selling at whatever price. But you can delay the supply. A web retailer will soon go somewhere else. 

BP: How many stores in the Birmingham area stock HSK products? 

CR: We have around 700 to 800 HSK partners and about 17 in Birmingham. 

BP: That's two showrooms stocking HSK products every four or five square miles! The end-user isn't stupid, they just look at your stockist list and compare prices. Look at the internet and you'll see HSK products being discounted by 40% - but you just said you give 40% off to your distribution network? 

CR: Yes, but the '40% off' is just a clever play on words. We might have a range of products to clear, so we allow them to say 40% off. 

BP: It's going to be the person who's giving the biggest discount who'll get the order nine times out of 10. 

CR: There's a clientele who would do just that, but there's also a lot of people who want quality, peace of mind and good service. 

BP: People criticise the web but I disagree - consumers just use it to get a good price, then go back to the showroom where they saw it first. Then it's up to the retailer whether they do

the deal or whether they're greedy. I know some Charles Yorke retailers still want to make 50% margin. They're living in the wrong world! That was 15 to 20 years ago. In today's world, you need to give 15 to 20% off and be returning a 30% margin on a £40,000 kitchen. To make £20,000 is a bit greedy. 

Q: Bill, your website offers 55% off leading brands. Is that a genuine offer or just a hook?

BP: You need a catchy line to get customers on your side. If you Google Heritage Bathrooms, we come top of the list. We have up to 37% off, you have to be competitive. What manufacturers don't realise is we spend a lot of money to be at the top and we're helping the

general sales of Heritage. But some offer 40% off and free delivery, which will make them about a fiver! 

CR: I still insist that the internet is what's caused the discounting problem, and if you set yourself up with only four or five displays, then you're at the mercy of the bigger people who can discount. 

BP: Instead of being jealous of each other, retailers should pick up the phone and talk. That's one way of protecting your margin. I remember having a meeting with Steve Cox at Jacuzzi.

We all sat round and agreed we would do a level of 20% discount, but the next day someone will do 30%, so it just doesn't work. We're all human but some are greedier than others.

Q: So who's most to blame for discounting?

BP: People like HSK are creating the discounting war by having so many showrooms all playing prices off against each other. If I were you Colin, I'd look at the top five dealers in Birmingham and just be with them. You're with 17 people! It creates discounting in the showroom. Manufacturers are in too many showrooms.

CR: HSK came into the UK in 2002 and wanted to get our name on the map. We're not encouraging discounting by having too many showrooms; there's a product strategy in there as well. We target different stores with different products.

BP: But take your HSK hat off and put a retailer hat on. If you were selling HSK or Duravit, or whatever, how many direct competitors would you expect to have in an area like Birmingham?

CR: Ten minimum. It's a big area. 

BP: But customers just look at who else sells your product, do the rounds and screw people to the floor. They won't come back to you if you don't compete with everyone else. Manufacturers moan about the internet, but they need to look at themselves and look at how many showrooms in that area they have. There's more discounting done in showrooms than on the internet. 

CR: Maybe but the internet is coming up on the rails fast. 

BP: You've got 50% too many showrooms in Birmingham already. You have to admit you've put fuel on the fire by allowing discounting.

CR: I just think there are too many manufacturers. Every one of them will have more than 10 dealers in Birmingham. I'm not encouraging discounting, the system may be. It's a commercial world, we have to provide a service. We keep a high profile while others have stepped off the gas. 

BP: All we get from manufacturers is that we're discounters, but you have to share some of the responsibility; it's created by manufacturers. 

CR: Every industry is the same. People can offer a 45% discount even if products have only been at that price for an hour. It's all PR and front. Maybe the recession will get rid of the discounters.

BP: You'll never get rid of them. The manufacturer is giving the retailer the tools to give big discounts. LF Bathrooms were offering 40% discount on Heritage but they're no longer in business, so we've reduced our level of discount. That shows we're not discounters, we're just playing the game. Manufacturers are greedy and give the crazy retailers the means to discount heavily.