Discounting While Preserving the Brand

Anyone who’s been shopping lately has seen it: the store wide sales, discounts, coupons and massive price reductions taken at the cash register. While back-to-school shopping last weekend, we saw it up close and personal. As a shopper, it makes me a little crazy not to know what the actual price is of the items in my hand and a little excited when it rings up as less than I calculated. As a strategic marketer, it makes me crazy to see across-the-board discounting on the rack and at the register.

In recent articles in Business Week, Retail Customer Experience, and elsewhere, the experts are weighing in on when, where and how to discount. There’s great retail advice out there. Kate Newlin’s recent article for Retail Customer Experience offers advice about the antidote to price-based competition. How do we kick our own addiction to price promotion? She asserts “We have to return our focus to the shopping (not buying) process, enhancing, entrancing, and engaging the customer and the salesperson in the dance.”

Kate advises clients on how to avoid discounting and how to contain the damage if/when they do by:

1. Hiring front line people with a passion for the merchandise
2. Branding the experience, differentiating on elements of style and design
3. Changing the tone, acknowledging that the customer knows the economy is in free-fall and expects a deal

In an August 14 article in Business Week, Steve McKee shares 3 rules for discounting wisely. They should discount briefly: make the rationale behind the discount credible (and obvious) to consumers, so they don't perceive it as an act of desperation. They should also discount credibly: for a limited time to treat a specific condition. And last, McKee contends they should discount creatively: by focusing on other elements of the marketing mix. I agree with McKee that in your customers' eyes, your product is either worth regular price or it's not.

I have one more tip. Retailers have the data to know which merchandise drives the sale of additional items, but still take across-the-board discounts. When they have to discount, smart retailers promote the items they know will lead to increased units per transaction at full or close to full price. This allows them to continue positioning themselves as the leader in their core driver categories and reinforces the brand for better days ahead.

Do you know which items or subcategories drive basket size? How well does your promotional strategy line up?

Social & Fun - A Winning Combination

More retailers are getting their toes wet with social media. And that's turning out to be fun and save money.

The recession has not been easy on most retailers, and marketing budgets have been slashed. Not to fear - social media is inexpensive and contests that emphasize fun over the value of the prize are winning customer hearts and minds these days.

Whole Foods is the latest to get with the program. The upscale grocery held a contest to hit the 1 million Twitter followers mark. But unlike the Lottery, where higher cash prizes fuel a Lotto frenzy, in Twitterdom, small gestures have a big impact. So, Whole Foods offered a million grains of quinoa and $50 gift card to the millionth follower.

According to Mike Duff's story on BNET Retail, they offered up 10 more $50 gift cards — and 50 more pounds of quinoa – as rewards for Twitter pals who could came up with clever five-word summaries of their food philosophies. The additional awards will be parceled out through the end of the contest period, which is Friday, but the first of the “micro-philosophies” winning a gift cards was: “Can you pronounce those ingredients?” Others entries that the company highlighted include “Peanut butter goes with everything.” And, my personal favorite: “Just say yes to chocolate.”

No doubt, many of these followers are not and will not become die-hard loyal customers. But a good number are or will, and their care and feeding is worth far more than a few hundred dollars. Oh, and since the retailer gave away Whole Foods gift cards, the money they spent comes back to the cash register, hopefully as partial payment on a much larger grocery tab.

Wanted: Effective Promotions

These days, consumers are more reluctant than ever to part with their hard-earned cash, and virtually every store is offering deals and discounts to get them to spend. We’ve been working with a few retailers to better understand how and what to promote in order to sell more units per transaction at full price (or at least, at less of a discount).

Viewing promotions through a basket-analysis based lens reveals how in touch retailers are with their customers. Take the email I received today from Target, and their most recent store circular. The subject line of the email reads: “Live large: Spend $125, SAVE 15%, plus FREE SHIPPING on select furniture.” The copy is tone deaf to the times. No one is “living large,” and conspicuous consumption is out. Who is Target talking to? How are they responding? Not well, I suspect.

Clicking through to the weekly ad raises more questions about Target's promotions effectiveness. The front and back covers are squandered. The covers should be all drivers proven to add items to the shopping cart. Page 1 is all about towels, sheets and pillows on sale. Are towels a driver for Target? Do pillows sell sheets? If so, then featuring sheets is a waste of real estate, and discounting them is a no-no. The back has a random assortment of food SKUs – not a big statement about Target’s commitment to the food category, which I keep reading about.

The insides of the weekly ad insert don’t seem to be working as hard as they could, either. They should feature drivers and not discount draftees on these pages, too. Pages 2-3 and 4-5 are furniture and related accessories. The office furniture spread attempts to sell “get organized” but the merchandise doesn’t really support that theme. The rest of the circular features random items and touts the great prices being offered on high-ticket items that are value-priced.

Page 17 is the closest thing to a category statement where Target is attempting to own “Clean.” It features 16 well-priced items merchandised together under the banner “Affordable, Clean Fun”. I’m guessing these actually are drivers in all seasons – people come into the store to buy them year round. Good move to promote them with a story behind them. Too bad they’re buried inside the circular.

All in all, the email and circular are a miss. And one Target probably can’t afford right now.

Who do you think is doing promotions well?