Cannabis industry reports

Do discounts work? Let's look at the data

March 9, 2020

Executive Summary

This report is a deep dive into Headset’s accumulated data on discounts. Using our real-time data on pricing, as well as some native charts from our new Demand Planning tool, we’re able to see when and by how much products are discounted, allowing us to see how they connect to external events like 4/20 or Thanksgiving. We can also see how discounts have evolved since the launch of the legal cannabis industry, how consumers respond to them, and when they’re most effective. Anyone who works in the retail side of the industry, or is simply interested in the behavior of cannabis consumers, will find this report useful.

Introduction

When the first legal cannabis was sold it was definitely not discounted. Eager customers lined up to pay $20 or more for a single gram, selling out stores like Seattle’s Cannabis City in a matter of hours. To put it a bit lightly, a lot has changed since then.

Now that cannabis is ubiquitous, at least in legal states, putting it out on the shelf in a plain mylar bag doesn’t quite cut it. Cannabis is closer than ever to being a traditional consumer packaged good, with seasonal sales trends, sophisticated branding, and, of course, specials. There is real competition, and that’s led to fairly significant reductions in average prices. Discounts are, of course, part of that story. The raw dollar amount of discounts has climbed very steadily since the legalization wave began, indicating that they’re an integral part of the industry.

At Headset, we love looking at how data reflects the actual human experience of buying cannabis, and discounts are a particularly great way to do that. We get to see what motivates people, what they’re willing to spend big on, how they respond to consumer holidays, and so on. We’ve also just launched a new tool, Demand Planning, that allows subscribers to drill down into discounts with extremely specific time and product parameters. For this report, we’ve borrowed a number of graphs that are directly pulled from Demand Planning and do what we think is an excellent job of illustrating how discounts affect consumer behavior.

We start with a look at year-over-year discounts, the broadest way to understand pricing in the cannabis industry. Then, we borrow our weekly discounts graph for 2019 from Demand Planning, which provides a great snapshot of how holidays and other seasonal trends played out in terms of discounts. Balancing discounts and actual revenue is a big blind spot for the entire industry it turns out, at least on certain days. On that theme, we also look into how discounts around two major holidays— 4/20 and Thanksgiving — stack up against the rest of the year.

After that, we examine whether discounts drive volume, looking at the discount makeup of different sizes of baskets (individual purchases at a retailer). We then borrow another graph from Demand Planning, this time comparing average discount to average item price (AIP), which lets us see whether big ticket items also carry big discounts. Lastly, we review another Demand Planning graph on which package sizes see the biggest discounts, which is, somewhat amusingly, not novel information for anyone who used to work in the black market. Buy in bulk, get a break!

Overall, a picture emerges of a market that has not quite figured out how best to use discounts but is getting close. Sometimes it’s about what you don’t do, and that definitely applies to discounts. While they absolutely do what they’re supposed to, in terms of driving volume, there are certain situations where they cost a business more than they’re worth. Knowing what those situations are is more important than ever. This report, we hope, will help.

Methodology

A discount is defined by Merriam-Webster as “a reduction made from a regular or list price.” In this report, we discuss discounts, average discounts, and percent discounts. We define discount as the actual amount the price has been reduced by, while a percent discount is the percentage of the original price that the discount constitutes.

What is a discount?

Average discount reflects the total dollar amount of discounts for a given parameter (a date or time, a geographic location, or a product category, for example) divided by the total base price of products sold for that parameter. Average discount does not reflect the average discount for any individual products. Regarding base prices, nearly every POS system used by the cannabis industry requires users to enter a base price when they input products to inventory. This is the full, pre-tax price of the product with no discounts applied, which is what we use to calculate our discount amounts and percentages against. 

Data for this report comes from real-time sales reporting by participating cannabis retailers via their point-of-sale systems, which are linked up with Headset’s business analytics software. The data included are from as far back as 2014, and as recently as the previous month. Some slides include data for more specific date ranges, which is noted therein. Sales data are cross-referenced with our catalog of over 400,000 products to provide detailed information on market trends.

Headset’s data is very reliable, as it comes digitally direct from our partner retailers. However, the potential does exist for misreporting in the instance of duplicates, incorrectly classified products, inaccurate entry of products into point-of-sale systems, or even simple human error at the point of purchase. For this report, the data are also self-reported by loyalty program participants. Thus, there is a slight margin of error to consider.

 

Along With Dropping Prices, Deeper Discounts 

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