Discounting is not a Marketing Strategy: The State of Retail Markdowns Read our 3-part series of how your brand can look to break the discounting cycle and implement an intentional strategy to protect profitability and long-term brand growth.
Is society accustomed to only buying on discount? We live in an age where discounts are expected, and it’s not enough to simply shave off a few dollars. Purchasing behaviour has changed drastically in recent years, with the ‘more is more’ mentality dictated by social media & fast fashion making consumer demand insatiable. But can every brand truly keep up with the increased supply and demand while remaining profitable? Pairing this with the current economic pressures, brands have fallen back on a constant discounting cycle to remain competitive in the market as well as to stay afloat in tough times.
Given the current state of the economy across New Zealand & Australia, large international fashion retailers going into liquidation, and the constant stream of discounts & offers outside of the normal sales calendar, it is almost an instant reflex for brands to succumb to the discount spiral as soon as they run into cash flow issues.
However, while discounts and sales can band-aid cash flow problems short-term, this business strategy - or lack thereof - can impact your business and brand irreversibly in the long run. For as long as you keep the discount cycle ongoing, offering ad-hoc discounts just to get more sales through the door, you continue to diminish your profit margins, leading to long-term loss of revenue.
Constant promotions and sale messaging will condition your customers to expect a discount, and they won't be so convinced to pay for your product at full price in the future when they already know they could be getting it cheaper if they just wait. This leads to a slow sell-through in season then having to hold larger sales with heavier discounts to clear stock. Moreover, the more you accustom your customers to constant price reductions, the more you lower the value of your product and brand in their perception. This is particularly dangerous if you are trying to position yourself as a premium brand.
While most brands need to go on sale at some point to move through unwanted inventory and generate cash flow, the key is to be intentional with your decision of when & how often to go on sale, and whether or not you take part in large sales events such as Black Friday or Boxing Day, or offer incentives such as a welcome discount or loyalty rewards.
When promoting a sale through your marketing channels, consider who you are speaking to. New customers you acquire via a sale are being introduced to your products at a much lower price point, therefore being conditioned to expect discounts with every purchase or to wait until the next sale before they make another purchase. As a business, you must consider how much you are willing to invest in acquiring low-value customers who may only ever shop with you for sale items.
For existing customers, it is important to use discounting and offers strategically, in a way that nurtures these customers rather than leading them to devalue the brand over time. If done incorrectly or too often, loyal customers may question the value of staying engaged with your brand, resulting in fewer repeat purchases. Conversely, those who are too used to being ‘treated’ with offers may start to question their loyalty & lose trust in your brand once you decide to stop the discounting.
So, how can your brand break the discounting cycle?
Start with setting strategies for better inventory management to move through stock efficiently, and prioritise effective marketing messages that create value for your brand rather than focusing the messaging around ‘sale’. This will allow your business to remain efficient and avoid falling into a state of panic and reactive decision-making.
This guide is part of our series – Discounting is not a Marketing Strategy. Read Parts 2 & 3 below:
PART 2: Effective Inventory Management