6 March 2014
The most powerful attribute a brand can deploy is its ability to demand and defend higher prices than its competitors. Since strong brands produce higher margins, discounting can be seen as a sign of weakness: brand demotions.
The most valuable thing a company owns is its position in the consumer's mind. When you tamper with this position, you are asking for trouble.
A temporary price reduction intended to increase sales over the short term. Sounds harmless enough. "We'll have the same quality, with a lower price."
Offsetting a 'quiet period' regularly, means customers quickly learn to anticipate the 'seasonal sales period', and defer their purchases until the next sales period rolls around. The brand’s everyday pricing no longer carries the same value. Customers withhold their visits until the next sales period, because they know another sales period is always on the way. Now the 'discounting periods' become extremely busy periods, putting undue pressure on operations, demanding additional overtime to meet deadlines and increased orders. And like every addiction, it is a long and painful process to wean consumers off this discount habit once it had been acquired.
You can't build a premium perception on a middle-of-the-road price.
Marketing is a long-term proposition. A company can get in trouble if it changes its marketing strategy to cope with a short-term problem.
Discounting, especially repeatedly, isn't sustainable. One of the key advantages of a sale is the element of surprise. Surprise aids stopping power in advertising, but surprise fades when you use the reduced-price trick over and over.
A focus on prices is about numbers, statistics, and carries people from right-brain emotional involvement in advertising to left-brain analytics. That's a bad trade-off, given that everyone feels before they think.
Results from the IPA's database of 880 marketing campaigns has found that emotionally-oriented campaigns generate twice as much profitability as traditional, hard-sell rationally-oriented campaigns.
Some experts believe that having 'seasonal discount sale' periods are a quick fix that can have long-term consequences due to the fact customers:
Sales promotions can be vital to sales technique, when deployed creatively and judiciously. They can inspire excitement, surprise and create a call to action.
For instance, Apple's student discount on laptops doesn't damage the brand because it's based on a rational corporate reason (get young computer users hooked on its products) and a credible consumer need (students are poor). The company also offers 10% off a new iPod when customers recycle their old one, which not only encourages upgrading but makes Apple look like a responsible corporate citizen. Both of these tactics enable Apple to maintain (perhaps even increase) brand equity while making its products more accessible.
Discounting with Discounting
In your customers' eyes, your product is either worth the regular prices or its not. In tough times that may be a more difficult case to make, with a strong brand. Whereas a focused, differentiated, and emotionally loaded positioning strategy will make your brand sell more effectively.
A focused brand will provide several benefits to your top- and bottom-lines. By definition, a brand focused on the positioning in the customer's mind is geared toward influencing that customer's behavior, i.e., buying your product or service, buying more of it more often, and talking enthusiastically about it. That means more revenue.
A focused brand positioning strategy also tends to improve alignment within the organization. As a direct result of tighter alignment, a lot of waste can be squeezed out of the system. That means fewer costs.
So consider the long-term position of discounting as it may be incredibly difficult to go back and re-establish the value proposition to your consumers.