Does discounting make consumers click with brands?

Recently we examined the grey clouds gathering around Black Friday, and its detrimental effect on both retailers and consumers. Read here. This prompted a deeper dive into discounting more generally, and its impact on consumer behaviour and relationships with brands.

Here are our top tips on how to avoid the discounting pitfalls, and strategies to grow sales while attracting the desired customer-base and strengthening a brand for the long-term.

1/ Play the long game – avoid the downward cycle 

Discounting is the easy button. A basic bid to attract new customers or increase sales. Its prevalence may suggest it is an effective tool, but it comes with trade-offs and health warnings; eroding margins, training customers to wait, attracting the wrong buyers and turning off the desired audience.

If reductions become predictable, why would a customer ever pay full price? Entire sectors have suffered this fate – nobody expects to pay the RRP for a washing machine or sofa. And UK casual dining fell into a discounting arms race of voucher codes as what started as a midweek incentive became unnecessary margin attrition across the board.

A conscious decision and a level of will-power is necessary to avoid the downward cycle. A steadfast approach focusing on long-term sustainable growth, rather than succumbing to discounting for a quick sales boost.

2/ Support brand building – focus on value over price 

Enduring brands focus on value growth and customer acquisition, devoting most attention to loyal users who are prepared to buy the product at its normal price because they believe in the quality/price relationship.

Key to protecting brand and product image is understanding who the desired customer is, identifying what they want, and understanding what they value in your brand, as well as what will turn them off.

We may tell ourselves that everyone will want their purchase for cheaper, but the relationship between price and quality is nuanced. Research has shown deep discounts can generate the perception that quality has also been lowered. It is better for long-term brand health to incentivise purchases by increasing the value your customer receives rather than simply reducing the cost of your goods

3/ Aim for strategic promotions – offer an incentive alongside a sense of ‘now’ 

There is a psychological difference between discount pricing and promotions. Both have a similar goal – to grab the customer’s attention and then create the motivation to convert.

Developing a healthy promotional strategy means working harder to understand your customer then working smarter to be innovative with incentives; developing creative and attractive ways to persuade the target audience to engage. Successful promotions appeal to the needs, values, and emotions of the target audience, and incentivising them to purchase an ideally time-bound offer.

This looks different depending on what you sell, who your customer is and where you play in your market. For example, in CPG (consumer packaged goods), a smart promotion may be a seasonal flavour at a lower price, whereas in high-end fashion, joining forces with complimentary brands is often an approach used to build a story to grab attention and extend reach. For example, Gucci and North Face collaborated this year, sharing and benefiting from each other’s fashion and technical credentials, respectively. In both cases, the promotion has given a reason to buy, as well as a sense of ‘now’. And both lead with value over price.

For any brand or retailer, it is critical to understand the strategic impact of discounting. Pure discounting can short-change a business and be self-destructive. But there is a sweet-spot between generating sales and profitability, whilst protecting brand and product image, so creating a win-win situation for brand and consumer. Ultimately, taking a long-term value-led strategic approach will improve margins, strengthen brand, and grow share…without unnecessarily cutting prices.

If you would like to speak to us about understanding your market and identifying where the true value lies in your brand and audience, please get in touch.