Retailers might as well face the facts — consumers are addicted to deals. The equally troubling truth is that retailers too are addicted and the habit is doing damage to many of their bottom lines. According to a piece in The Washington Post, merchants are once again trying to break the discounting habit. Whether it will ultimately set them free or lead to top and bottom line pain remains to be seen.
A number of retailers including Express, Neiman Marcus, New York & Co., Quiksilver and Vera Bradley, according to the Post, are planning to dial back on the depth of their discounting and number of promotions. The hope is the combination of a recovering economy and offering the right products will mean consumers begin to reduce price as a point of emphasis in their purchasing decisions.
Cutting back on promotions does not mean the end of deals for consumers, but retailers are likely to tinker with different kinds of deals, such as those limited to specific categories or perhaps those targeted based on past purchases, to drive revenues and clear shelves and racks of excess inventory.
While pledging to refrain from frequent 40 percent-off deals, merchants will no doubt remain cautious as they proceed. There are examples of retailers that stuck to a strict pricing strategy in the past — Abercrombie & Fitch and J.C. Penney come immediately to mind — that hurt their respective results. Even Macy's found it had to ramp up promotions following complaints from customers at department stores it acquired from May Department Stores in 2005.
There is some research to support retailers that choose to rely more on full-price sales, particularly as it relates to acquiring new customers.
According to a study released by Coherent Path in December, online customers who purchase products on discount are 50 percent less likely to return to the site to make a second purchase. Those who visit a site and pay full price are twice as likely to return a second time.
"Our data shows that when price plays a significant role in the first-time purchase with a retailer, even online, the chance of them becoming a long-term and loyal customer can be low," said Dr. Greg Leibon, CTO of Coherent Path and a resident scholar in mathematics at Dartmouth.