Deep discounting is arguably the top driver of holiday sales,
as evidenced by the billions of dollars in revenue generated during
high-promotion shopping days such as Black Friday and Cyber Monday. But the
craze for price cuts appears to no longer be limited to the holiday season —
the rise
of Prime Day is pressuring retailers to take a similar promotional approach
not just on the day(s) of the event itself but for the full month of July.
The RTP editorial team shares their thoughts on deep
discounting and discusses whether retailers rely too heavily on it. Are these
levels of discounting an inevitability in retail today, and are there effective
alternatives that can be used during peak selling periods?
Adam Blair, Editor: At a Retail
TouchPoints Live! session last month in Chicago, Northwestern
University Associate Professor John Greening had a simple explanation for why
discounting remains the go-to strategy for retailers seeking to attract
customers and generate sales: “Price cuts work — you’ll get short-term
results.” But — and you knew there would be a but — “what retailers don’t know,
and can’t measure, is what they have given away off their brand image by using
the deep discount.” Of course, retail executives struggling to make quarterly
numbers would protest that it’s easy for an academic and a journalist to
denigrate deep discounts — and they would be right. Another panelist, Steve
Lovell of Adore Me, admitted that the company “still gets hung up
on price. When you’re digital-first and watching sales every minute, when you
seem them sag, the inclination is to promote something. It’s a fine balance,
and it’s tough to have only a little bit of heroin. It takes
someone to step back and say ‘We’ll only do this much.’” Retailers do need to
be aware that sales “bought” with a deep discount are more than likely to cost
them in other ways.
Glenn Taylor, Senior Editor: The Amazonification of
retail definitely has pushed mass market companies like Walmart and Target
into scenarios where they essentially need discounting to prevent the
e-Commerce giant from cannibalizing sales. I think those companies will do just
fine, just as they do throughout the holiday season, primarily because they
haven’t held back in spending across the board (although we’ll have to see how Walmart’s
overall e-Commerce expenditures play out sooner or later). They can take
the slight hit to their profit margins from discounting, and even promote their
own private label brands. My
concern lies with the department stores that have felt forced to discount
heavily in their attempt to keep pace. These retailers haven’t been able to
pivot their overall store businesses fast enough, and they aren’t able to take
the financial hits that Walmart and Target can sustain. Theoretically they
should have a better chance to win on product differentiation or exclusivity in
categories such as apparel, fashion, accessories or footwear, but unfortunately
none of the major department stores have proven able to stand out in these
fields. I think most successful retailers today in those categories have gotten
by on brand loyalty, and that’s something that doesn’t often require a deep
discount to keep.
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Bryan Wassel, Associate Editor: This may be a case where
most retailers don’t have the luxury to choose whether they’re relying “too
heavily” on discounts — shoppers have simply become used to deals, and if they
can’t find them at one retailer they’ll go to another with a better price. A
recent BRP study found that 67% of shoppers say they are likely to choose
a retailer that offers mobile coupons over one that doesn’t offer them, and
that’s for in-store shopping. When it comes to e-Commerce, shoppers have nearly
limitless options only a few clicks away, and smaller retailers can’t afford to
sit back and hope that brand loyalty will be enough to keep cash-strapped
parents from doing their back-to-school shopping on Amazon. The trick is to
offer good prices without devaluing your brand, as Steve Lovell, Head of Retail
Development, Adore Me warned
against during RIC19. This may be a place where data can come to the
rescue: personalized, contextual discounts can help retailers give shoppers
great deals at their most likely moment of purchase, without forcing them to
permanently discount their entire inventory. Data also can help retailers hold
back on promoting items to shoppers who would gladly have paid full price for
the item — a win-win that satisfies the customer and improves the retailer’s
margins at the same time.
