Brands And Discounts: A Dangerous Liaison

Failing retail brands often have a second theme that unites them: discounting.

While the popular press might trumpet sales promotions as being good for the consumer, it’s also worth remembering that price discounting is very bad for brands that over-use it.

Let’s start with the most obvious drawback: it’s literally money off the bottom line. Too many marketers focus on traffic and revenues at the expense of margin. And that could be a crucial error when there is a vital trade-off between attracting more consumers into the store with discounts versus cutting deep into gross margin with 30% or 50% off list prices.

The second downside of discounting is commodification. The reason consumers are hopefully prepared to pay more for your brand is because it represents more to them than the alternatives. The brand associations add value to the offer and that lowers price sensitivity, increases demand and further enforces brand loyalty and repeat purchase – the classic outputs of brand equity.

But just as you build brands by focusing on their associations, you break them when you reinforce the commodity at the expense of those associations. And that’s what discounting does. It draws attention to the price and the product and says to the consumer ‘forget about what we stand for, buy us because we are cheap. Buy us because we are a commodity’.

When I see brands on sale for less than the recommended retail price it makes me question the brand. Suddenly it is not expertly made, high-quality fare – it is just cheap at a bargain price. Once the spell of the brand is broken, very few branded manufacturers can support their high cost operating model in the cut-throat environment of commodity competition.

Heavy discounting also makes a mockery of consumers who paid the RRP only a few days earlier. Full-price customers are often overlooked in the pursuit of the fickle, bargain-minded crowd. But brands should sometimes take a longer-term view. A price is a promise of value between a brand and a consumer. When we suddenly and inexplicably drop prices, we embarrass and disappoint those who had the faith to buy us at full price. The discount-driven frenzy will subside, and soon we will need our original consumer back. Let’s hope they will exhibit more consistency and reliability than we did with our recent pricing.

Even consumers eventually lose interest in discounts. Run a single sale and the market flocks to you. Run it again too soon and the impact dissipates. Keep running sales and the consumer starts to wait for them. When that happens, the crucial balance between pull and push is lost.

I am not suggesting brands should never discount. There are valid strategic reasons why promotional activity makes a lot of sense. But marketers should use sales promotions sparingly. Repeated use can lead to disaster.

Occasional and selective discounting can make strategic sense. But when marketers believe it is a tool that can be applied without any cost, they begin a vicious cycle in which discounting grows sales, but at the expense of brand equity and customer relationships. As a result, the brand needs to run another phase of discounting to offload unsold stock and attract lost traffic – and the brand is hurt again.

This thought piece is featured courtesy of Marketing Week, the United Kingdom’s leading marketing publication.

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