Why discounting is no longer the answer
By Rebecca Factor & Calista Vantarakis on October 10th, 2018
Online retailing has increased market competition and created flood like conditions for flash-sales and discounting. But even more alarming is the major disconnect emerging in Australia’s retail market at a potential cost of $11.3 billion -directly related to poor pricing strategies.
The hidden figure in Neilson’s latest research on promotions and pricing is the $24.48 million spent on discount sales for products that would have sold regardless.
In response, getting ahead in the competitive retail market is recognising the need to secure sales through different promotion strategies that don’t focus on relentless discounting preventing resource waste.
This month we offer some helpful insights to reframe a promotion strategy that doesn’t heavily rely on discounting and in part, delivers a better experience for both the customer and brands long term.
Get to know your customer to avoid ‘marketing-waste’
Knowing what drives your customer and how this interrelates with price sensitivity is essential. As the Neilson data suggests, price elasticity factors provide the evidence base for what type of promotions will deliver the best results.
For example, Neilson found staples like bread and coffee, have low sensitivity to discount sales therefore there is no major need to use discount to impact sales. But a review of products in this category, which ordinarily have a low sensitivity to price, regularly use discount promotions.
At Edge we understand price sensitivity is often a key factor why brands entering the market and looking for acquisition do so with price as their focus and in some situations it’s relevant. Over the long term however, it may not deliver strong results or return on investment.
Creating a favourable brand image
Alternatively to a one off discount, which customers are likely to forget, a smart incentives strategy can create a lasting impression from aqusition through to brand advocate.
Gift with pucrchase, cashbacks, competitons and try me free all provide compelling headlines to draw in consumers, whilst protecting brands from over redemptions.
When it comes to retention, rather than offering blanket discounts to an existing and loyal customer base, a more effective strategy recognises the added value that a rewards incentive can bring.
A rewards incentive /offer will often provide additional benefits to the customer beyond the product purchase. Unlike discounting, which can have the adverse effect and influence a customer to switch products as price fluctuates.
Similarly, the effort not to discount can mean a brand or product is not easily devalued from the perception of repetitive discounting on the product.
Get customers smiling
When gamification is added to a free product or sample, it can create a captivating and irrational psychological reaction in a customer. Ultimately delivering an extremely positive brand image to the customer.
Achieve a positive impact on sales
What these insights continue to reinforce is that a more innovative pricing and promotions strategy looks beyond discounting and for good reason.
Typically, discounting doesn’t positively impact value, rather it can actually lower brand reputation and just like a virus, once it starts it’s hard to stop.
A simple strategy to rectify repetitive discounting and achieve a positive impact on profitability and sales is to think about upselling, future-use rewards, gift with purchase and loyalty programs.
Edge can help you develop a strategy to preserve brand integrity and leverage special offers and rewards.
Get in contact with us on LinkedIn.
Rebecca Factor & Calista Vantarakis
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