Devotion to promotion?

Coming to the end of our annual post-Christmas retail sale binge, it is interesting to take a closer look at Australian consumers’ and retailers relationship with promotions. With indications there is increasing ‘pull forward’ of traditional/Christmas sales to flash sales events like Black Friday and Click Frenzy, evidence is building to suggest consumers are prepared to change behaviour to avoid paying full price.

At a strategic level, retailers employ a range of pricing strategies. At one extreme, we see off price retailers that rarely sell anything at full retail price, and at the other, retailers who would rather destroy merchandise than discount it. In between are the “high/low” and “everyday low price” models.

Price is often the deciding factor where there is little differentiation or brand proposition (products are seen as commodities or substitutable). Alternatively, to successfully compete without price being the only factor, you need to be able to demonstrate value beyond price.

There is no doubt, discounts are attractive to consumers and at a tactical level, retailers are employing neuromarketing to appeal to our emotional brain to make sales. Some of the most popular of these techniques are anchoring (showing the RRP and new price – a key factor in high/low model) and charm pricing (prices ending with .99 popular with value operators).

Discounting can be helpful to generate quick sales or clear stock, but is not without side effects. It works well for some retailers, where it is temporary or the desire is to make a quick sale, but it risks brand devaluation, margin erosion and a reset of price expectations in the minds of consumers.

Whatever the strategy and tactics employed, the retailer must be clear on its customer value proposition and use discounting is part of the broader strategy. Our observation is that the low growth environment, where differentiation is proving increasingly difficult, the allure of discounting is becoming greater, with price being used to generate sales and maintain market share.

Given consumers will continue to take advantage of discounts when offered and increasingly expect them, retailers need to be deliberate with their pricing strategy and be aware of the broader implications it can have on brand perception.