Discounting Damages Your Brand

The first response for many businesses in a difficult economy is to slash the price of their product or service. It’s rarely a good decision for the short-term situation and definitely has negative repercussions for the long-term success of the brand.

Give Them a Reason to Buy

Brandweek featured an article earlier this year that reported the results of the Dollars & Consumer Sense 2009 study by Yankelovich. The findings indicate “consumers often have a negative reaction when they see the price slashed for their favorite product or service.” Here are some of the key findings reported in the article:

• 70% of the respondents to the poll said such cuts probably mean the brand was overpriced in the first place
• 62% said they assumed that the product was old and they were just trying to get rid of it
• 64% of those polled said they assumed the product is either extremely popular or a good value if they maintain their price

Saks Fifth Avenue, once a very prestigious retailer, adopted a discounting strategy. They retreated from that pretty quickly after they lost nearly $100 million in Q4. They’re adding a mix of lower priced items instead.

J. Walker Smith is quoted in the article saying, “People are suspicious if you significantly discount your brand. If you make significant changes in your value proposition it can confuse them. You have to give them reasons to buy stuff as opposed to just lowering prices as a knee jerk reaction to the economy.”

Why Do You Discount?

Because it’s easy! Dropping the price is a much easier than creating a more compelling reason for a customer to do business with you. The Brandweek article went on to say this…

A potentially more damning result of lower pricing is deflationary expectations, per Yankelovich. This means consumers are postponing purchases in anticipation of prices falling further. Up to 60 percent of those polled believed companies that cut prices would continue to do so. “People are sitting around waiting for more discounts. That’s a really bad thing,” says Smith. “The deflationary cycle is very difficult to remedy once it takes hold.”

Just look at what has happened to the all-important Christmas retail shopping season. Retailers have trained shoppers to wait for big discounts. Now they have the vicious cycle of starting discounting even earlier in the season. These retailers are freaking-out till the last minute not being sure what is going to happen. Living and dying by the discount is not a way to do business.

Are You Creating a Discount Habit?

Discounting is like a drug habit. It takes more and more of a discount to have a noticeable impact if you continually discount over time. Stores that rarely have a sale can see an increase in top line sales if they have a sale event, but to get the same effect for the next one, they have to increase the amount of the discount. Discounting reduces sales, profits, and erodes market share. Most importantly, it can damage your credibility.

There is a time and place for discounting like clearing seasonal merchandise. So stop and think before you have a knee jerk reaction and pull the discount trigger. Do the hard work first of creating a more compelling value proposition—a reason for people to do business with you. It’s the best way to build a strong brand.

Tagged as: Advertising, Branding, Management, Marketing