I just read an interesting story on CNBC.com, “The Trick to Weaning Shoppers Off Discounts” which discusses how several retailers are faring after switching to more of an “everyday price” approach. The key points of the article are that:
- significant changes in discounting strategy need to be implemented gradually, something that JCPenney ignored with painful results;
- a truly differentiated retail experience is needed to keep shoppers engaged without requiring constant price incentives, such as at Apple Stores (other examples are IKEA and Trader Joes).
My shopping behavior for certain products or retailers is definitely influenced by my expectations for discounts. Retailers that continually send me discount offers are in essence changing the way I act, but not in a way that is in their long-term interest since I will not make purchases until I receive my offer. As the story notes, the use of blanket discount offers is hard to stop since it creates a lower perceived value in the minds of consumers – an alternative to consider is using rewards for loyalty or achieving purchasing thresholds.
In order to move away from a dependence on discounting to drive sales, retailers must have a precise understanding of how their pricing tactics are affecting customer behavior. Comparing the effectiveness of different tactics, and measuring the elasticity of demand as discounts are increased or decreased are critical insights into determining your company’s options for changing a discounting strategy. If you don’t have the capabilities to effectively measure your customers and their buying behavior, you won’t be able to make informed decisions and successfully make this transition.