Can Your Brand Afford To Discount?

Posted by: Charnell Lucich on: December 29, 2008

• In: Customer Service | General | Internet | Technology
• 2 Comments

I got an e-mail this morning from MarketingProfs that really caught my attention and I wanted to share it because everywhere I turn, I’m seeing discounts. While I understand why, I have the very same questions that are included in the article below.

During a time when customers are asking themselves, “Do I need to spend this much on that?” Companies, across the board, are turning to discounting attract customer traffic. While it seems discounting has become a pre-requisite to drive sales this Christmas season, I can’t help but wonder long term scars will be created on companies and brands?

• Will consumers be willing to pay full price again after the slump?
• Will our products and services be devalued in the longterm?
• Will brands make this ‘temporarily necessary’ tactic part of their marketing toolbox?

Starbucks has broken one of their cardinal rules: “We will not discount our whole bean coffee. Right now, everything at Starbucks is 20% off, including whole bean coffee.

(Tangent: Yes technically you can get Starbucks whole bean coffee at a lower price at warehouse discounters and at some of the grocery locations (mostly because Starbucks can’t control pricing at these locations). But until now have always stuck to the “won’t discount whole bean” rule).

Starbucks, like so many other retailers has decided they need to play the discount game to compete.

There is no doubt today’s retail strategy relies heavily discounting. In fact, The Boston Globe reported this morning, “Even Luxury Shops Must Coax: Turn to discounts as clientele holds back. Jenn Abelson’s article uses information from the data service SpendingPulse, to report that:

“Luxury spending, which includes high-end apparel, leather goods, restaurants, and jewelry, plunged 24.4 percent compared with the previous year.”

The article later adds, “Neiman Marcus Inc. reported sales plummeted 11.8 percent in stores open at least a year, and Tiffany & Co.’s North American shops saw sales drop 14 percent at stores open a year… The unprecedented discounting this holiday season is just the beginning of what upscale retailers are willing to do to try to bring back customers. For example, Saks also offered no payments or interest on purchases for a year for shoppers spending $2,000 on their Saks Fifth Avenue credit card.”

There is an everybody’s-doing-it “Get Out Of Jail Free” card brands are using as justification, since… nearly every retailer *is* discounting. However, as someone’s mom used to say, “Just because everyone is jumping off the Brooklyn Bridge does that mean you should do it?”

The root of the problem is in the lack of creativity by companies. Or at least a lack of being able to think creatively – quickly. Companies are having to do something QUICK and FAST to drive sales, so they turn to the ‘low hanging fruit’ of marketing tactics – discounting.

While added traffic may feel good to worried retailers, but discounting brings problems.

• Perceived Value – Will customers willingly pay full price again when the crisis is over? Once premium product now become perceived as commodities. Customers begin to perceive the actual worth of the $50 item, marked down to $40 as worth $40.
• Discounting Erodes – Increase traffic feels good, but may not be driving incremental sales. While discounts may drive traffic. They erode margins. We’re making the slippery holiday ice we’re skating on thinner.
• Self Control – Now that the glass has been broken on the “forbidden discount tactic”, will we marketers forget we ever employed it? Or will we simply put it at the bottom of our marketing toolbox for potential future use?

I believe disciplined, strong-willed brands will put the discounting tactic in the freezer and thaw it in another ‘extreme emergency.’ Less disciplined, less-creative thinking brands will come to rely on discounting in the future as “fair game.”

What are your thoughts?