Discounting pricing strategy – detrimental to retail brands

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When a brand continually discounts its goods or services do you ever want to pay full price for those same goods when they aren’t on sale? Every time I visit Katmandu they are having a sale and its usually a substantial one with discounts of 40-70% off. The full price on the tag has become meaningless to me because I know that this must be inflated to counteract their continual discount strategy. This leaves me never wanting to pay full price because I know there will be a sale coming up. So is a discounting price strategy detrimental to your brand and what are some other strategies to build brand loyalty and repeat purchase?

When you continually discount consumers no longer feel like the sale is special, they come to expect it and become reluctant to pay full price which means you become stuck in a perpetual discounting cycle. Just think of the Pizza price wars, when brands such as Dominos and Pizza Hut started lowering their pizza prices consumers were no longer willing to pay full price so the discount strategy had to remain in place. Discounting erodes the value of your brand in the minds of your customers. It devalues the price that a customer is willing to pay.

Discounts do have the added advantage of providing a spike in sales and are a good way to clear last seasons stock. However, if overused they also eat in to your bottom line giving you less profit margin. For retailers discounts do have a place and they can be a great strategy however what seems to be be happening in this industry is continual discounting where it becomes a year long strategy rather than used strategically.

It is no longer effective to give a 10% discount, consumers don’t see this as valuable. They have become desensitised to discounts, for them to have any impact retailers need to discount even more heavily. This results in a downward spiral of discounting where stores are offering 70-80% off. This isn’t a sustainable pricing strategy as there is little attention to lasting gains and customer loyalty, it is more focused on short term gains. Competition is fierce and retailers are fighting for market share and consumer spend so in their battle they have become their own worst enemy. If your competitors offer discounts and you start to cut back on price promotion you may be left with less traffic.

One way to combat this and stand out from your competitors is to offer a differentiated brand experience. By focusing on other areas such as product quality, service level, value adds and a unique product offering you can differentiate your brand without having to discount. Another way to build your customer base is to reward loyalty and repeat purchase through targeted incentives.  These steps will ensure you maintain long term brand loyalty and continue to grow your bottom line without cheapening your brand.

If Katmandu offered it’s products at reasonable prices and had sparing discounts I would attribute more value to their products and would be more likely to pay full price. I believe that their product is great quality but for me the brand has been cheapened by a continual discount strategy.

Gemma Dittmar
Director of Brand Projects

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