As the holiday sales loom, it can be tempting to throw caution to the wind and discount like crazy in pursuit of traffic and margin-low spend, but, says Paul Hunt of Pricing Solutions (part of the iris network), the effects on the overall brand can diminish hard brand-building work.
Before we get into the bargain bashing – I’d like to make the point that there are times when discounting is a good idea for many businesses – and it’s a part of most strong organizations pricing strategy. Towards the end of a product's natural life-cycle, discounting helps to move product and make room for new innovation in the marketplace. It can even encourage brand loyalty when timed and executed in the right way…. but we’re not here to talk about that type of discounting.
When brands discount without intent, or constantly, without solid business numbers or a strategy to back up the move it is often more than detrimental to the brand. Not only does it set a dangerous precedent (why buy full price when I can buy for a fraction?) but it’s also a convention which consumers are starting to see through (does this really represent value? Is it current stock?).
There are brands all over the world that will be discounting heavily come January. For many businesses these times could make or break their quarter as the psychological perception from consumers is that there will be a deal to be had.
There are of course – beautiful examples of brands taking a step back from the discounting fray – REI for example, a brand built around outdoor pursuits, it (sharp intake of breath) closed its’ doors on Black Friday and encouraged everyone to GO OUTSIDE. Living, breathing the brand's purpose.
But for the majority of retailers Q3 and especially Q4 is when the bulk of their sales occur, and so participating in these “deal days” is imperative to hitting their numbers for the year. And for those brands that have spent the rest of the year offering constant discounts, the road back to full price after this will be difficult (see GAP as a cautionary tale). It makes us fall victim to the tyranny of ’Like for Likes’. You have to keep discounting because you train consumers to expect it.
The important lesson here is, is that discounting should never take the place of standing for something and sticking to your core purpose.
Michael Kors and Coach learned the hard-way with both using discounts and promotions on an ongoing basis to drive sales. This, is in stark contrast to Kate Spade who limits access points to the brand (to predominantly owned stores) and maintains a healthy margin accordingly.
There are ways to promote without resorting to straightforward discounting – partnerships (access to exclusive content or product via a purchase), or spend stretches – 'spend £50 and get a £5 voucher or spend £60 and get a £10 voucher’ – literally getting people to stretch their spend by offering a reward) are just a couple of those.
Topshop and Burberry were amongst the first to give access to their shows digitally and allow fashionistas to buy straight from the catwalk (without a hint of a discount in sight)
This is the type of added-value which makes people feel that they’re getting more for the full price they’re paying. Early access to product or content is a classic way to generate interest and maintain margin. In fashion, it’s all about the new stuff – so early access works.
As does limiting access and the volume available. In general, the harder it is to buy, the more people want it.
The value equation works the same way irrespective of category – it’s rarely about ‘need’ and mostly about ‘want’, and wanting is generated through strategic (and extraordinary) brand communications (in the fashion category usually by creating brand ‘worlds’ which consumers buy into) and through experience and behaviours which enhance and maintain our perceptions of the brand.
Let’s take the mighty Inditex (owner of Zara) as our example. Known, the world over as the fastest and best high-street interpretations of the catwalk, it spends nothing on above-the-line communication and is absolutely clear about discounting. It happens twice a year in the form of a (pretty close to total) sale, at the end of the two big seasons. That’s it. The money (which seems to continue to rise), I guess is spent on design, sourcing, manufacturing and the all-important supply chain which keeps us endlessly excited about what is coming next.
- Don’t let promotions & discounts undermine your brand
Promotions and discounts can be a powerful way to encourage traffic into retail stores and it can be tempting to mark down key items to try to keep store sales growing BUT balance and restraint is required to maintain brand integrity.
- Don’t increase your price faster than your competitors
As your brand starts to grow it’s tempting to start to try to capture this added value by raising prices. Your core customers will stick with you through some price increases but don’t lose sight of the bigger picture. If your increases start outpacing the industry drastically without adding additional value to the brand then your customers won’t pay for the increased price and you risk damaging your brand image.
- Never lose sight of who your core customers are.
If you start creating new products and adding value in places that your core customers don’t care about your brand will lose it’s base and without that, it will crumble.
- Don’t set yourself unrealistic growth goals
Forecasting high growth & high margins in a slow growth market can be a recipe for disaster. Your growth goals need to stay grounded in the context of your industry.