Discounting - The effect on consumer behaviour and their brand perception of the retailer
Whilst on the face of it, high levels of discounting and promotional activity may appear attractive to consumers in the form of lower prices, the RTT believes that widespread use of it can create risks for retailers. First and foremost, it believes that erosion of a retailer’s brand is one of the biggest risks faced.
Paul Clarke of Barclays Retail & Wholesale Sector posed the question: “If consumers are eventually persuaded to go into stores they don’t usually shop in at sale time, do they see a different proposition? Do sales destroy brands?”
The RTT consider that a poorly executed sale or promotionprovides a lesser experience for shoppers and potentially undermines relationships which the retailer has worked hard to create. The value proposition can be diluted and the customer confused. Furthermore consumers are often irritated by seeing goods they bought previously appear at reduced prices at a later date.
The trend towards ongoing promotional tactics has also now ‘trained’ consumers, if they have the freedom or opportunity, to wait for discounted offers. The RTT suggests that this works to incentivise ‘bad’ behaviour from the retailer’s perspective and turn previously ‘good’ customers into ones with a constant bargain-hunting mentality. The RTT believes that the consumer has come to expect this continually changing landscape as the norm and that the likelihood of ‘every day’ discounting by a particular retailer can encourage customers to delay purchases.
There is also the issue of ‘breaking faith’ with consumers. If a store’s point of sale (POS) material always says ‘up to 70% off’, yet the customer never seems to believe they receive this level of discount, they can easily lose faith and take their custom elsewhere. Constant price reductions devalue goods, and fuel price deflation.
Mark Teale of CB Richard Ellis commented: “During sales, shoppers are often attracted to stores that they do not usually patronize. The number and type of stores visited by shoppers increases during sales periods. Sales, in this context, are a way of broadening the customer base: building the awareness of offers. Events programmes in shopping centres have the same purpose: encouraging visits by shoppers who usually shop elsewhere with the intention of converting them to regular customers. Sales, and events generally, are an important element in the overall retail marketing process. Not having sales - when others do - reduces the opportunity to convert new customers to regular shoppers.”
Retailers may now feel that they are trapped between a rock and a hard place and that there is a risk that they cannot very easily or quickly exit the cycle of discounting. “Retailers have confused value for money with bargain-hunting, but this has been created by the sector itself. From the consumer’s point of view, it is difficult to justify non-discounted prices when they see retailers are seemingly able to drop them by 70 percent, later in the season,” said Sian Davies, Henley Centre Headlight Vision.
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