Overdone Discounts Dull Shopping Pleasure
By Bernice Hurst, Contributing Editor, RetailWire
At least in Australia, retailers
are discounting and consumers are heaving sighs of boredom. Talk about counter-productive.
According to the Herald
Sun in
Melbourne, “The cut-price deals that have become a continuous feature
of the retail landscape have backfired with millions of consumers.”
Cynicism
is apparently trumping delight at finding bargains, with shoppers beginning
to wonder “whether genuine savings are up for grabs.”
Those were
the findings of survey of 1,000 shoppers across Australia conducted by AMP
Capital Shopping Centres.
The article stated that although the study found
a proportion of hardcore bargain hunters hooked on sales, many others “have
tuned out because of overkill or think sales have become a gimmick.”
Overall,
45 percent of those surveyed agreed that discounts “had lost their
appeal and no longer acted as a spending trigger” for them, according
to the article.
“There are rising numbers of a new post-GFC (global fiscal crisis) group
of discerning shoppers who want a great deal more from their shopping experience
before they part with their hard-earned cash,” Stuart Langeveld, head
of marketing at AMP, told the Herald Sun. “They want to be inspired
and engaged. They want the promise of a memorable experience before they are
tempted to venture into a retail outlet and spend.”
The study came out
a day before Myer, Australia’s largest department store chain, announced plans
to launch a customer service improvement campaign in a bid to wean its customers
off constant discounts. The retailer plans to spend $20 million to add one
million extra staff hours to boost service, particularly in lingerie and shoe
departments.
“We’ve conditioned our customers to buy on special so it’s going to take
us quite a few years to ease back, what you would call, the reliance on specials,” Myer’s
chief executive Bernie Brookes told the Herald Sun. “(But) I wouldn’t
be surprised if the removal of discounting becomes the case for the next few
years for retailers.”
Discussion Questions: Are U.S. consumers beginning to experience discount
fatigue? How much of a challenge will it be to wean U.S. consumers off continual
discounts seen during the recession?
This is from a holiday whitepaper I will be releasing in the next week:
Retailers cutting prices in the midst of an economic downturn to entice shoppers to buy is an old idea that failed to kick start consumer spending during the Great Depression. As the Depression wore on, many retailers resorted to price cuts to the point where in January of 1933, the New York Times was quoting an economist with Macy’s who noted that the effects of the price slashes of 1931 and 1932 were so deep that increased physical volume sales could not make up for the effects of the price cuts.
In fact, it was noted that the “drama of the great price decline has lost much of its appeal to the customer audience” and that “successful promotions will no doubt be built around new ideas.” These “new ideas” included a greater emphasis on quality merchandise for “merchandise standards have in many cases deteriorated severely.” In other words: Cutting prices ultimately hurt both retailers and consumers alike.
With the popularity of Groupons and their dangers at destroying margins, the discount quiver seems to be out of arrows to juice sales. Maybe we’ll get back to being retailers again – maybe.
Beginning? Hasn’t the “discount” been seen as the regular buying price for a decade or more? Haven’t shoppers been trained only to buy on “discount”? How far back can anyone remember when “Discount” created a buying urgency? We have written about this numerous times on this site.
Other than staples, shoppers know that if they wait a short period of time they can get whatever they want on discount. Who out there has bought an American car (or any car these days) for list price?
Weaning the consumers out of the continual discount mode is not a recession challenge. It is a retail challenge, period. There is only one way to get off of this merry-go-round. Companies (retailers in particular) have to be satisfied with less gross revenue and focus on more margins.
In this day and age of SKU over-rationalization, retail chains have nothing else to differentiate themselves beyond discounts and sales. Smart moves by CEOs–not so much.
This article is ignoring the fact that discounts are what has built the modern day retailer, from Wal-Mart’s beginnings to all of the Dollar stores of today. The consumer thrives and lives on discounts. Believing that they are “bored” of them is ignoring what happens every week when a retailer features an item in their store at a discounted price. Sales go up, inventory velocity increases and profits increase. These are the result of discounts, not in-spite of them.
I think the luxury department stores, for one, have done a pretty good job of weaning consumers off discounts by limiting the availability of hot products. Many upscale shoppers are now acutely aware that if they want the latest designer handbag from Saks or Nieman Marcus they can’t wait for it to go on sale anymore, because these retailers have really cut back on orders and inventory. Margins go up and shoppers get weaned of automatic sales.
Chain restaurants, on the other hand, at least where I live, are too often in the habit of offering some kind of coupon or discount every week. One that I’m thinking of recently upgraded their menu and remodeled many of their locations, but still can’t seem to wean themselves off using a weekly coupon, which comes via FSIs, newspaper ads, mailers, and e-mail. After awhile, it makes you wonder what’s wrong with their menu that they have to keep this up continuously.
“New Normal” shoppers demanded value, and expected their retailers of choice to deliver the best value for the money. For many shoppers, the thrill of finding a “better” price is waning, as the amount of time and effort to track down deals is starting to wear. After a while, many stores start looking almost the same, so differentiation with price is no longer a profitable strategy. With pricing and assortments so much alike in many markets, retailers are going to have to find different reasons to keep shoppers coming back.
Discounting via coupons and in-store advertised sales seems to be the central marketing tactic of most retailers in the mall. That in itself should scream “do something different” to the business owner.
I believe there is a discount “threshold” that consumers need to see in order to take action. When was the last time you were motivated by a coupon for 10% off, 20% off, even 30% off? I think the number that motivates people to at least visit and see what kind of bargains they can enjoy has a floor of 25%.
Some retailers have a very bad habit of adding the Loyalty Asterisk to their discounts. One that comes to mind is Office Depot which spends lots of money on direct mail and offers 10% off $50 or 15% off $75 purchase. The trouble is the asterisk as they eliminate most everything that I am normally in the market to buy from the eligible list (can you say “electronics”?). My humble suggestion to ODI, either open up the discount to a wider range of items or increase the percentage on the restricted list. 10% off $50 is a tired offer in my opinion and is indicative of consumer boredom with discounts.
Price competition and discount driven marketing create a retail death spiral which can only be broken by smart data driven marketing where offers can be made to specific groups of people and the results measured.
Consumers have long felt fatigue at the pervasive discounts in the retail environment–it cheapens the brands and makes it appear that the base retail price is in fact over-pricing. What retailers are creating is a situation where consumers hold out more and more to the last days of a period, in order to make sure that they get the cheapest prices. You see this for back-to-school as well as for holiday.
The effect on the brand should not be underestimated as well. What these discounts do is to teach customers that the retailer is not to be trusted, that their offers and pricing can change without warning and that what they say is true (e.g. “best price available”) is usually a lie. When retailers teach customers that they lie, the relationship quickly falls to shreds and consumers begin to treat retailers like commodities, increasing price-shopping and decreasing customer retention.
The stupidest way to sell anything is to pay the customer to buy.
Like many of us, I tend to filter opinion research like this through years of experience and reality. What people say and what they actually do are often quite different. This is usually exacerbated by the actual questions asked (the research design) and the manner and tone of the interviewers. I couldn’t find a copy of the questions, though, to determine if they were leading. Bottom line, I can’t buy into the results of this study until I know more about its mechanics. Shoppers are tired of discounts? Come on.