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The Discount “Drug”

DiscountsThe Star Tribune’s “Chill on Apparel” article caught my eye as I’ve noticed that, every year, the media mistakenly interprets early results of holiday retail sales as a poor season forecast. Have retailers “shot themselves in the foot” with their continued “drug” of using ever-increasing discounts as a strategy of enticing the consumer to shop with them?

From time and eternity, business has looked for effective strategies to get their customers to come to them. Retailers have used unique products, niche advertising, social media marketing, free shipping, and seasonal discounts on everyday merchandise, to name a few.

When I joined our family’s business, we used a 486 page catalog with 8,600 items attractively displayed on every page. Remember, this was before the advent of the internet. Using a merchandising system whereby we projected sales and profit by item, we could sell an assortment of nationally branded merchandise at extremely competitive prices. The strategy worked and the customers flocked to Dolgin’s catalog showroom stores all over the country. We were the hot resource! We soon added monthly flyers to stimulate even more customer traffic.

We got a taste of this discount “drug” when catalog showroom merchants started offering further local discounts on various items, calling them “Tru-Specials.” The second year, we added more flyers and more specials. While our everyday prices were truly special, customers began waiting for the “true” specials. Marketing became so dependent on the Tru-Specials that the business could no longer project a solid gross profit. Our maintained profit deteriorated and, with added specialty retail competition, the catalog showroom model evaporated from the retail market.

Retailers today still offer continuous discounts in various forms, from percentages off to coupons. Retailers have educated a very bright consumer to shop only when they have a coupon in hand or when prices drop 20-50%. Many consumers hold out for that 50-70% off sale. This is why it makes no sense for the media to get too excited about early holiday retail results.

An astute shopper will not shop early for the holidays. Nor will they be easily tempted by bait-and-switch loss-leader tactics. The tech-savvy consumer can quickly search the internet for price comparisons, without even leaving the store. They’re familiar with the routine. They know that retailers will eventually sell their merchandise at deeply discounted prices. It is a wonder that a retailer can make a profit at all. Everyday prices must be inflated to cover their discount strategy.

JCP attempted a good corrective strategy with their everyday low pricing approach. The consumer, however, was used to the “drug” – they wanted their coupons. One reason the strategy wasn’t successful is that management moved too quickly in their execution and tried going “cold turkey.” They completely removed the beloved bargain discounts without first convincing a skeptical consumer that they really were getting a bargain every day, with consistently low prices on nationally branded goods.

For help with your product strategy and market execution, contact Élanstrategic. We help businesses find a way to creatively adapt and thrive in this competitive market. Élanstrategic moves ideas from planning to execution as we partner with business leaders to solve everyday challenges that arise during the execution of the plan.

Happy Holidays! Enjoy your discounts!