2 Studies Indicate that Price Discount Strategies Ruin Brand Value and Alienate Customers
A new survey by an Australian auto accessories company lends support to the notion that consumers might actually resent price-discount promotions used by so many retailers today. Superauto in Australia regularly polls customer attitudes from their website. Ironically, Superauto is known as a discount auto parts seller.
From the report: “More than half the nation (51 per cent) has been stung by this so called price-cutting up to three times in the past 12 months, with more than one in ten falling victim up to six times a year. “
It’s not far-fetched. The survey results suggest the worst damage to consumer goodwill occurs when consumers buy a product at the regular price and then sometime afterward find the product being sold at a discount. Obviously consumers feel entitled to best pricing always. Superauto fanned the flames further by claiming that “Australians are losing up to $1.7 billion each year on ill-timed purchases by paying full price for items only to find them discounted soon after.”
That is basically bad PR for retailers and brands that use discounting as a dominant strategy.
Price Discounts and the Long Term Damage
Aside from brand damage and lower revenue, inconsistent order volumes, and added transport costs, the tactic tends to encourage consumers to hold off purchasing until discounts return. The manufacturer can lose control of production, logistics, and other fulfillment related schedules. Price discounts can take everyone out of their comfort zone and create the kind of instability characteristic of products and brands on the way out.
From a 2012 Business Week article: “Wal-Mart has had a tough few months. In February, the Bentonville (Ark.)-based company reported sluggish sales growth and depressed profits, the result of lowering prices to get customers into stores.”
Price discounts really aren’t really an innovative market disruption that create the value consumers want, nor are they indicative of a leading brand. Discounts actually signal a brand abdicating its pole position in the race. It’s just another “me too” strategy that dilutes brand strength pushing a brand into a commodity – where it needs another strategy to differentiate itself.
Another study by Yankelovich reported on Adweek suggested that consumers feel the product was overpriced or outdated if they get it discounted. From the report:
“People are suspicious if you significantly discount your brand,” said J. Walker Smith, president of Yankelovich Monitor and executive vice chairman of The Futures Company. “If you make significant changes in your value proposition it can confuse them. You have to give them reasons to buy stuff as opposed to just lowering prices as a knee jerk reaction to the economy.”
Brands that do not discount achieve a positive halo among many consumers, per the study, which polled 1,002 consumers in January. Sixty-four percent of those polled said they assume the product is either extremely popular or a good value if they maintain their price.
Are price discounts the only strategy you’re using these days? We can’t just say that price discounts are the result of a lack of imagination. When your entire industry is stuck on price and retailers only look at price cutting to generate sales, it takes courage to stick to your guns and find more creative promotional tactics. There is plenty you can do instore or at point of purchase to increase sales, build brand loyalty, and keep your shelf position. Point of sale promotional vehicles including shelf talkers, banners, and temporary displays show that you can make your product special and communicate greater value.
Research shows that shoppers are really looking for greater value as opposed to a reduced price on an inferior product. Yet, many will walk out of the store with an inferior, low priced product. That’s not the outcome you need, therefore you’ll want to brush up on the latest shopper marketing research so you can avoid price discounting.
As shoppers ourselves, we frequently fall victim to price discounting schemes. When you think about how that affects brand loyalty and repeat purchases, you get the idea that too many retailers and manufacturers are thinking short term with sales. Consider how brands such as Apple, Coach, Gucci, Tiffany, Prada, Rolex, Nissan, Audi, and BMW can charge the highest prices on the market. Whatever your industry, it’s better to take the time to improve how you communicate brand value. That improved messaging will appear on your POP displays and packaging resulting in less discouragement from your brand loyal customers.