Does Discounting Price to Incent Customers Damage the Brand?

B2C_badge_100Here’s  Today’s Thought on Marketing:   Don’t allow your rose-colored sales growth glasses to impact your bottom line profit, your pristine brand reputation, or incent you to make adverse decisions about your business and its growth potential.

Marketing science contends that sampling of high quality products or services incents purchase.  The challenge faced by a seller, of course, is how to get his or her superior quality product or service into the hands of the consuming public and incent the public to sample it, allowing them to decide for themselves that the product is, in fact, superior—or offers superior price—or is more readily available, etc.  As logic follows, brand loyalty will develop and the world will then beat a pathway to the door for the consummately better mousetrap.

But does life really work that way in today’s economy?  How much does it matter to the consumer that the product or service is the best?   Considering recent Black Friday Weekend sales events, one might come to the conclusion that decisions are driven more by price than by quality.

Often, the tunnel vision price, as opposed to quality premise, leads to couponing or discounting of prices to drive purchase decision.  One need only look at the overall number of coupons flooding the marketplace to see that retailers have bought into the premise that consumers love coupons.   Indeed, entire reality television programs have been developed around the premise of what has come to be known as “Extreme Couponing”—defined by the talents of individuals who do nothing but purchase hundreds of dollars of goods for little or no cash—but with the ubiquitous coupon in hand.

Local retailers become inundated with demands for advertising dollars, and—fearing competitive superiority—run coupons, develop advertising books, participate in catalogs, direct mail coupons, text or email “specials.”  And to what end?   The retailers make an assumption that discounting drives sales and paves the avenue to riches.  Little or no regard is often taken-or is logically discounted– as to the impact on bottom line profit that discounting as a science demonstrates.  After all, when “everyone is doing it,” we “better get on board the train.”

Today, however, our point is not to condemn discounting.  Those who practice widespread discounting can see their bottom line profit deteriorate to the extent that they “give away the store.”  The practice becomes a desperate cycle, literally “training” consumers in many cases to wait for coupons in order to purchase products.  Stories abound throughout retail regarding management who believed couponing would save their ventures, only to find that giving away more and more of their profits didn’t purchase brand loyalty, but, rather, prostituted their customer relationships.  The original intent, in case you have forgotten, was to get high quality products and services into the hands of the consuming public so that they could sample, build brand equity and top of mind awareness, and create a lifelong relationship through frequency purchases.

So that brings us back to a critical juncture.  Is it possible to define the point where discounting a high quality product or service creates a “negative”  brand quality conflict in the mind of the user?  If users are continually able to purchase products at a discount due to marketing decisions and advertising schemes, where do they place brand loyalty in the hierarchy of purchasing decisions?

We’ve been doing some research on this very point, because we have some retail clients who are invested highly in discounting as a substitute for sampling.  It’s a bad precedent, unless you need to demonstrate top line sales more than you need to enjoy bottom line profits.   We remember well a retail chain that utilized a couponing philosophy to the extent they, literally, “trained” their customers to wait until coupons were published to visit and purchase products.  Not only did the chain suffer diminished profits from the promotional costs they incurred because of this philosophy, but they decreased their customer counts by 38% in the weeks they did not market with coupons!

In most recent times, the media has highlighted the fact that JC Penney, one of the initial stalwarts of American retailing, returned to a coupon/discount scheme because their sales were falling, their profits were falling, and the “Great American Redo” of their stores did not fit with the store brand in the minds of their customers.  This would seem to solidify the concept that couponing brings in the masses.    We would contend that this represented a “fly-by” between JC Penney customers and JC Penney Management.  A “fly-by” occurs when both parties miss the objective.

In reality, a strong brand image can bring in the masses. Work hard to create the strongest brand image possible for your business. Cultivate and enhance your brand wherever possible.  Customers and clients may take advantage of a loss-led special or groups of specials, or may take advantage of a discount coupon which is offered, but they must have a positive brand image of the business to consider shopping there in the first place.  If you don’t believe this, simply review business entities you would not frequent, even if they offer you phenomenal discounts to incent you to do so.

Don’t allow your rose-colored sales growth glasses to impact your bottom line profit, your pristine brand reputation, or incent you to make adverse decisions about your business and its growth potential.

The following radio program originally aired on Supertalk 92.9, The Steve Hawkins Show, on 12-10-2013.

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