October 27, 2014
Will retailers give away the store this Christmas?
Retailers are acting a little too much like Santa Claus when it comes to Christmas promotions, according to researchers from Oxford University’s Saïd Business School.
The researchers examined 215 studies with a total of 23,690 participants reported in 104 articles, journals and other sources from 1998-2013. According to study’s authors, "Retailers often do not need to offer price promotions, multi-buys or discounts, and in fact they can actually undermine the celebratory mind set of target consumers. By tapping into a more ‘prevention’ mentality, such campaigns send mixed messages and could actually reduce sales."
The authors discuss the idea of "regulatory fit" which they define as "the match between people’s regulatory focus — either promotional (pleasure seeking) or preventative (risk avoiding) — and their purchasing habits." The research indicated that matching those inclinations with marketing and sales materials could "strengthen positive attitudes and behaviors towards brands."
But aren’t price reductions necessary to drive volume particularly when so many retailers are engaged in Christmas creep, moving up their holiday advertising and merchandising sometimes in advance of Halloween? An article on the Adweek site referenced a Google study, which found 26 percent of customers start shopping for Christmas in October.
Professor Pucinelli doesn’t think discounts are always necessary. "Our research indicates that advertisers can create the desirable orientation within just one advert … an appreciation of the importance of ‘fit’ for consumer decision-making means that small, typically low-cost changes to messaging, packaging and communications can have a profound impact on consumer choice," she said.
If messages focus on indulgence, consumers with a "promotion" mind set will want to maximize pleasure by switching to premium brands and spending more to get the most out of their purchasing.
BrainTrust
Recent Discussions
Discussion Questions
Are retailers overusing promotions, particularly during the Christmas selling season? What can retailers do to avoid giving away profits through unnecessary or too steep promotions?
Poll
Since my first book was entitled You Can Compete: Double Sales Without Discounting, I’m keenly aware of the subject. But what is the poor marketer to do? The only way to measure engagement, clicks, etc., and to show the CEO that the CMO knows what s/he is doing, is if the customer downloaded/used a coupon.
There are plenty of cheap people out there who will use discounts, coupons, line up at 6PM on Thanksgiving, what have you—if that is who you want to court, go right ahead.
And like prostitution, once you decide that’s the answer, the less likely you will be to get away from it.
The better marketers I think understand price can juice sales if used judiciously. If you have a brick-and-mortar store, conversion rates that are profitable come from engagement, real engagement with a human being to balance the promos with the full-priced items. That takes training your employees.
Otherwise you are cherry-picked into oblivion.
It’s a perennial challenge to balance the push to capture one’s fair share of the holiday shopping dollars without giving up too many margins while moving out all that committed and purchased inventory. And every retailer is in a brutal battle against their physical and digital competitor.
So, although the notion of finding the right fit to minimize discounts is good advice as a business approach, it has less than full applicability for the holiday crush!
Absolutely. Unfortunately, price discounting has become the drug of choice for retailers. Why? Because it is the easiest tool in their promotional tool bag. Anyone can give product away. It takes brains to sell it.
As noted in the article, there are alternatives. The risk is that we have conditioned consumers that low prices are now the expected norm, mitigating other attempts to influence behavior.
The organization’s philosophy, marketing acumen and metrics determine the organization’s approach. If number of sales or revenue is the goal and the metric is dollars sold or number of units sold, the marketing approach is to sell the largest number of units or to bring in revenue. Intermediate metrics may be the number of coupons downloaded, the number of coupons used, the number of units sold or the revenue generated. If you notice, this approach sounds fairly common and normal. However, you will also notice there is no mention of profits in this scenario or customer loyalty or customer lifetime value. If the philosophy and metrics are short term, the marketing activities will focus on achieving short term goals.
If the organization knows its customers and what they value, and uses metrics to evaluate success against those goals, more creative marketing activities are likely to generate more profit.
Promotions is an area that could use some help from data analytics. Consumers are often willing to buy without a coupon, but knowing when and why would be of significant value for retailers and data analytics can help shed more light there.
In a word, yes!
As for how to rehab an addiction to giving away profit by the truckload, I’d suggest an intervention by a new school of retail strategists. The old, “If you lower your prices 20 percent, I’ll lower mine 30 percent” approach to holiday shopping has to stop.
We live in a nation conditioned to buy on Black Friday, odd hours between Thanksgiving and the holidays and—increasingly—between Christmas and New Year.
It’s a monster retailers created and it won’t die until there is a change in the conventional wisdom about holiday pricing—something radical like selling unique items, or offering extraordinary service (or services) or not gaming pricing throughout the year.
Hey, it’s the holidays and people will spend too much anyway.
On how to lower the cost of promotions? Stop offering stupid discounts and/or price matches to stupid discounts.
Many retailers and a great many consumers love promotions, including excessive promotions, particularly at Christmastime. For instance one retailer regularly advertises, “Buy one suit and get three suits free.” On the face of that, consumers know something is wrong and start wondering if bartering could be next. So a great many consumers support high-discount merchandising.
What can retailers do? Consumers can sense the true value of a retailer’s offerings. Stick within that strategy, fair priced and common sense promotions, all things will work out in the balance. But so long as most everyone wants to out-price the competition, retailing will continue to be mesmerized with how much it takes to out-compete the other guy. As Oliver Hardy of Laurel and Hardy might say, “This is a fine kettle of fish you got us into, Stanley.”
I believe the retailers have educated/trained the consumer to wait for the holiday deals. If a retailer is going to compete on price, the consumer will be loyal as long as the price stays low. The way around this is to offer value. Promise easy returns. Create a positive holiday shopping experience: Short check-out lines, well-staffed stores, etc. Offer items the consumer can’t get anywhere else and promote the item, not the price. Start training the consumer on how good you are, not how low-priced you are.
I do not believe customers care about low prices as they already know they can get low prices on Black Friday and after January 15th on clearance.
I believe the customers want to play with their mobile phones, want to click and collect and want to explore pop-up shops. The customers want the mobile experience they are hearing about, not some discounting strategy.
Retailers are overusing promotions, and many of the promotions simply lead to cherry-picking the discounted items without the benefit of stocking up on other full-price merchandise. I agree that retailers need to leverage the possibilities that have arisen with big data to deliver targeted promotions to their best and most loyal customers, which should eventually enable the retailer to capture a larger share of wallet from these whole-basket consumers.
Are we still truly competing on price alone this holiday selling season? Innovative merchants and CPG brands are driving profitable, yes, profitable growth via offers that promote the benefits of purchasing their products rather than, or at least in addition to, low prices. These benefits can be in the form of a tangible loyalty reward rather than a mass, un-targeted discount. Perhaps free shipping or personalized/concierge attention in-store and online.
Use tools available today that find those products and categories that are less price-sensitive, and refrain from discounting those, or discounting those too much. Your customers will purchase those items regardless of the discount offered.
I agree with most of the comments of my colleagues. Addictions are hard to stop.
I will add one thought: Better planning. Retailers tend to buy what they want to sell in terms of revenue. If I want my revenue to increase 5 percent this year, I simply buy 5 percent more merchandise to sell. Then of course, it becomes apparent that they won’t make the number and they start discounting.
What they must ask themselves is not, “how much do I want to sell?” but “how much can I sell profitably?” Do any of you know any retailers that think that way?
Retailers do not overuse discounting. It is only a response to consumer demand. Beyond smaller more specialized retailers, or beyond the top 5 or 10% income earners, the customer will not walk in the door without being enticed via discount. Every retailer that tries to do it differently pays the price. We may not like it, we may have done it to ourselves, we may pretend we can get away from this, but reality is reality. We cannot, because the customer rules, not us.
Retailers are definitely overusing promotions during the holidays. One way to move away from this profit-killing mindset is to focus on providing value. Retailers should also set their sights on customers who don’t base their decisions on price alone.
There will always be people who only care about price and there aren’t a lot of things retailers can do to entice them without killing their profits. The fact is though, there will always be someone out there selling the same thing for less, so instead of trying to compete on price alone, merchants can focus on adding value and engaging shoppers who care about factors *other* the price—like customer service, convenience, superior products, etc.
There’s a reason why Trader Joe’s, despite having higher prices than other supermarkets, generates higher sales per square foot than its competitors or why people flock to Apple Stores despite the fact that they can purchase the same products for less at Walmart or Amazon. These retailers built great stores and trained their employees well, and those efforts translate to a great shopping experience that other stores can’t match.
And if a merchant *must* go the discounts route, they should at least use data and analytics when implementing promotions to avoid giving away offers that are too big to customers who would convert at a lower threshold.
Customer A may be contented with a $5 off coupon while Customer B would need a 20% discount to convert. The key is determining which offer to send to whom, so the retailer can maximize their margins.
Retailers are likely overusing promotions. However, the problem is that few retailers know enough about their own businesses and their customers to make an intelligent decision as to what to do. This is the cumulative result of having been sold too many shortcuts (foremost among those is the dumbing down of employees) over the years. Managers don’t know how to manage, sales people don’t know how to sell, and service people have no idea what service really is.
Therefore, the only tool that a retailer has to entice a customer to enter the retail hell most provide is “low prices” — prices so low that most consumers will put up with the retail environment to get the deal. With the advent of e-commerce, many consumers have found that they can actually get a better deal without the retail hassle by buying online. This will force the inept retailers to offer even larger incentives to lure customers.
As I expect this Christmas season (holidays, for you politically correct folks) to be very, very difficult. Every possible effort will have to be made to entice shoppers. Retailers should be ready with multiple bundles to accompany the sale of every loss leader or profits will be horrible.
It’s too late to put the Discount Genie back into the bottle as bragging about “getting a good deal” is one of the joys of being a consumer during the holiday season. So retailers should focus on finding their acceptable level of price discount promotion as part of their complete marketing strategy. As we see each holiday season, finding the balance is the challenge.
With comparative price shopping of retailers made easy with the web and mobile devices, it is critical for retailers to evolve toward the price promotion level that will allow them to draw price-centric consumers while also executing strategies that go beyond price differentiation. But beware the cold turkey strategy when weaning the customer base off of discounts. I would advise balance and pragmatism during the process of promotional discount reduction as the J.C. Penney experiment of a few years ago showed what happens when discounts are abruptly discontinued.
I’m always fascinated by the “experts” that pontificate about how bad promotions are with no real data to support their premise. You’d think that the J.C. Penney cold turkey promotional debacle would have been a lesson on what happens when promotions are eliminated entirely. But, alas, I have little chance of converting the “drug-metaphor anti-promotionistas” that promotions are a fundamental shopper need and can be highly beneficial to manufacturers and retailers.
The only bad promotion is one where retailers and manufacturers don’t make money. Usually deeper discounts are better at generating incremental sales and profits, and when structured correctly, will always outperform a strategy of no promotions at all. These assertions are backed up by extensive empirical and theoretical work on my part. I’m still waiting for someone….ANYONE… to refute it with anything resembling anything more than platitudes and flawed conventional wisdom.
Walmart taught America that “Price is KING!” America listened and bought in completely. Over the years—too many to mention—stores have used discounting to lure customers and produce sales. It worked, and now it is what America expects and wants.
This is also a statement on associates and the lack of appreciation for them by the retailers. Lesser paid, lesser trained people who are readily interchangeable and replaceable are better in many companies’ opinion, on a cost basis, rather than well trained knowledgeable sales associates who know their product, assortment, and company. I am NOT saying that there are not good, interested, knowledgeable sales staff out there. I am saying that the sales person of old simply isn’t the same these days—and perhaps can’t be because of the model.
This also has to do with the offerings of the company as well. Many stores have “special” merchandise at lower prices as lures and “door busters” than their other “normal” merchandise in order to maximize discount.
All this said,it has become much more difficult to have people understand that a better item may be much better off in the long run (and today’s society is “throw-away,” so they probably are more interested in price regardless) and most retailers WANT to sell 2 or 3 lesser items than one good one.
Basically, I do believe that the discounting and the “special sale” model—most significantly in Christmas/Hanukkah sales—is going to continue for the great majority of retailers. Retailers will use ways to maximize minimal profit in these events, but not give it up. Most retailers would rather use easy-discounting than other much more difficult potential methods of trade enhancement.
More Discussions
How Timely Is the Planned Lowe’s Website Renovation Focusing on Personalization?
Is Lowe’s being timely with its website reno, and is it right to be placed as…Should Costco Be Opening Members-Only Gas Stations?
Is this the right move for the warehouse club?As Boomers ‘Age Out of Peak Purchasing,’ How Can National Brands Retain Interest With Gen Z?
According to a recent First Insight study titled “Is Gen Z Still Choosing Your Brand,” while…
Since my first book was entitled You Can Compete: Double Sales Without Discounting, I’m keenly aware of the subject. But what is the poor marketer to do? The only way to measure engagement, clicks, etc., and to show the CEO that the CMO knows what s/he is doing, is if the customer downloaded/used a coupon.
There are plenty of cheap people out there who will use discounts, coupons, line up at 6PM on Thanksgiving, what have you—if that is who you want to court, go right ahead.
And like prostitution, once you decide that’s the answer, the less likely you will be to get away from it.
The better marketers I think understand price can juice sales if used judiciously. If you have a brick-and-mortar store, conversion rates that are profitable come from engagement, real engagement with a human being to balance the promos with the full-priced items. That takes training your employees.
Otherwise you are cherry-picked into oblivion.
It’s a perennial challenge to balance the push to capture one’s fair share of the holiday shopping dollars without giving up too many margins while moving out all that committed and purchased inventory. And every retailer is in a brutal battle against their physical and digital competitor.
So, although the notion of finding the right fit to minimize discounts is good advice as a business approach, it has less than full applicability for the holiday crush!
Absolutely. Unfortunately, price discounting has become the drug of choice for retailers. Why? Because it is the easiest tool in their promotional tool bag. Anyone can give product away. It takes brains to sell it.
As noted in the article, there are alternatives. The risk is that we have conditioned consumers that low prices are now the expected norm, mitigating other attempts to influence behavior.
The organization’s philosophy, marketing acumen and metrics determine the organization’s approach. If number of sales or revenue is the goal and the metric is dollars sold or number of units sold, the marketing approach is to sell the largest number of units or to bring in revenue. Intermediate metrics may be the number of coupons downloaded, the number of coupons used, the number of units sold or the revenue generated. If you notice, this approach sounds fairly common and normal. However, you will also notice there is no mention of profits in this scenario or customer loyalty or customer lifetime value. If the philosophy and metrics are short term, the marketing activities will focus on achieving short term goals.
If the organization knows its customers and what they value, and uses metrics to evaluate success against those goals, more creative marketing activities are likely to generate more profit.
Promotions is an area that could use some help from data analytics. Consumers are often willing to buy without a coupon, but knowing when and why would be of significant value for retailers and data analytics can help shed more light there.
In a word, yes!
As for how to rehab an addiction to giving away profit by the truckload, I’d suggest an intervention by a new school of retail strategists. The old, “If you lower your prices 20 percent, I’ll lower mine 30 percent” approach to holiday shopping has to stop.
We live in a nation conditioned to buy on Black Friday, odd hours between Thanksgiving and the holidays and—increasingly—between Christmas and New Year.
It’s a monster retailers created and it won’t die until there is a change in the conventional wisdom about holiday pricing—something radical like selling unique items, or offering extraordinary service (or services) or not gaming pricing throughout the year.
Hey, it’s the holidays and people will spend too much anyway.
On how to lower the cost of promotions? Stop offering stupid discounts and/or price matches to stupid discounts.
Many retailers and a great many consumers love promotions, including excessive promotions, particularly at Christmastime. For instance one retailer regularly advertises, “Buy one suit and get three suits free.” On the face of that, consumers know something is wrong and start wondering if bartering could be next. So a great many consumers support high-discount merchandising.
What can retailers do? Consumers can sense the true value of a retailer’s offerings. Stick within that strategy, fair priced and common sense promotions, all things will work out in the balance. But so long as most everyone wants to out-price the competition, retailing will continue to be mesmerized with how much it takes to out-compete the other guy. As Oliver Hardy of Laurel and Hardy might say, “This is a fine kettle of fish you got us into, Stanley.”
I believe the retailers have educated/trained the consumer to wait for the holiday deals. If a retailer is going to compete on price, the consumer will be loyal as long as the price stays low. The way around this is to offer value. Promise easy returns. Create a positive holiday shopping experience: Short check-out lines, well-staffed stores, etc. Offer items the consumer can’t get anywhere else and promote the item, not the price. Start training the consumer on how good you are, not how low-priced you are.
I do not believe customers care about low prices as they already know they can get low prices on Black Friday and after January 15th on clearance.
I believe the customers want to play with their mobile phones, want to click and collect and want to explore pop-up shops. The customers want the mobile experience they are hearing about, not some discounting strategy.
Retailers are overusing promotions, and many of the promotions simply lead to cherry-picking the discounted items without the benefit of stocking up on other full-price merchandise. I agree that retailers need to leverage the possibilities that have arisen with big data to deliver targeted promotions to their best and most loyal customers, which should eventually enable the retailer to capture a larger share of wallet from these whole-basket consumers.
Are we still truly competing on price alone this holiday selling season? Innovative merchants and CPG brands are driving profitable, yes, profitable growth via offers that promote the benefits of purchasing their products rather than, or at least in addition to, low prices. These benefits can be in the form of a tangible loyalty reward rather than a mass, un-targeted discount. Perhaps free shipping or personalized/concierge attention in-store and online.
Use tools available today that find those products and categories that are less price-sensitive, and refrain from discounting those, or discounting those too much. Your customers will purchase those items regardless of the discount offered.
I agree with most of the comments of my colleagues. Addictions are hard to stop.
I will add one thought: Better planning. Retailers tend to buy what they want to sell in terms of revenue. If I want my revenue to increase 5 percent this year, I simply buy 5 percent more merchandise to sell. Then of course, it becomes apparent that they won’t make the number and they start discounting.
What they must ask themselves is not, “how much do I want to sell?” but “how much can I sell profitably?” Do any of you know any retailers that think that way?
Retailers do not overuse discounting. It is only a response to consumer demand. Beyond smaller more specialized retailers, or beyond the top 5 or 10% income earners, the customer will not walk in the door without being enticed via discount. Every retailer that tries to do it differently pays the price. We may not like it, we may have done it to ourselves, we may pretend we can get away from this, but reality is reality. We cannot, because the customer rules, not us.
Retailers are definitely overusing promotions during the holidays. One way to move away from this profit-killing mindset is to focus on providing value. Retailers should also set their sights on customers who don’t base their decisions on price alone.
There will always be people who only care about price and there aren’t a lot of things retailers can do to entice them without killing their profits. The fact is though, there will always be someone out there selling the same thing for less, so instead of trying to compete on price alone, merchants can focus on adding value and engaging shoppers who care about factors *other* the price—like customer service, convenience, superior products, etc.
There’s a reason why Trader Joe’s, despite having higher prices than other supermarkets, generates higher sales per square foot than its competitors or why people flock to Apple Stores despite the fact that they can purchase the same products for less at Walmart or Amazon. These retailers built great stores and trained their employees well, and those efforts translate to a great shopping experience that other stores can’t match.
And if a merchant *must* go the discounts route, they should at least use data and analytics when implementing promotions to avoid giving away offers that are too big to customers who would convert at a lower threshold.
Customer A may be contented with a $5 off coupon while Customer B would need a 20% discount to convert. The key is determining which offer to send to whom, so the retailer can maximize their margins.
Retailers are likely overusing promotions. However, the problem is that few retailers know enough about their own businesses and their customers to make an intelligent decision as to what to do. This is the cumulative result of having been sold too many shortcuts (foremost among those is the dumbing down of employees) over the years. Managers don’t know how to manage, sales people don’t know how to sell, and service people have no idea what service really is.
Therefore, the only tool that a retailer has to entice a customer to enter the retail hell most provide is “low prices” — prices so low that most consumers will put up with the retail environment to get the deal. With the advent of e-commerce, many consumers have found that they can actually get a better deal without the retail hassle by buying online. This will force the inept retailers to offer even larger incentives to lure customers.
As I expect this Christmas season (holidays, for you politically correct folks) to be very, very difficult. Every possible effort will have to be made to entice shoppers. Retailers should be ready with multiple bundles to accompany the sale of every loss leader or profits will be horrible.
It’s too late to put the Discount Genie back into the bottle as bragging about “getting a good deal” is one of the joys of being a consumer during the holiday season. So retailers should focus on finding their acceptable level of price discount promotion as part of their complete marketing strategy. As we see each holiday season, finding the balance is the challenge.
With comparative price shopping of retailers made easy with the web and mobile devices, it is critical for retailers to evolve toward the price promotion level that will allow them to draw price-centric consumers while also executing strategies that go beyond price differentiation. But beware the cold turkey strategy when weaning the customer base off of discounts. I would advise balance and pragmatism during the process of promotional discount reduction as the J.C. Penney experiment of a few years ago showed what happens when discounts are abruptly discontinued.
I’m always fascinated by the “experts” that pontificate about how bad promotions are with no real data to support their premise. You’d think that the J.C. Penney cold turkey promotional debacle would have been a lesson on what happens when promotions are eliminated entirely. But, alas, I have little chance of converting the “drug-metaphor anti-promotionistas” that promotions are a fundamental shopper need and can be highly beneficial to manufacturers and retailers.
The only bad promotion is one where retailers and manufacturers don’t make money. Usually deeper discounts are better at generating incremental sales and profits, and when structured correctly, will always outperform a strategy of no promotions at all. These assertions are backed up by extensive empirical and theoretical work on my part. I’m still waiting for someone….ANYONE… to refute it with anything resembling anything more than platitudes and flawed conventional wisdom.
Walmart taught America that “Price is KING!” America listened and bought in completely. Over the years—too many to mention—stores have used discounting to lure customers and produce sales. It worked, and now it is what America expects and wants.
This is also a statement on associates and the lack of appreciation for them by the retailers. Lesser paid, lesser trained people who are readily interchangeable and replaceable are better in many companies’ opinion, on a cost basis, rather than well trained knowledgeable sales associates who know their product, assortment, and company. I am NOT saying that there are not good, interested, knowledgeable sales staff out there. I am saying that the sales person of old simply isn’t the same these days—and perhaps can’t be because of the model.
This also has to do with the offerings of the company as well. Many stores have “special” merchandise at lower prices as lures and “door busters” than their other “normal” merchandise in order to maximize discount.
All this said,it has become much more difficult to have people understand that a better item may be much better off in the long run (and today’s society is “throw-away,” so they probably are more interested in price regardless) and most retailers WANT to sell 2 or 3 lesser items than one good one.
Basically, I do believe that the discounting and the “special sale” model—most significantly in Christmas/Hanukkah sales—is going to continue for the great majority of retailers. Retailers will use ways to maximize minimal profit in these events, but not give it up. Most retailers would rather use easy-discounting than other much more difficult potential methods of trade enhancement.