January 16, 2018 / By Victoria Gray

How to Break the Discount Cycle in Retail

How to Break the Discount Cycle in Retail

I was in a local mall at the beginning of December, not something I do often, and was surprised to see a heavily-discounted holiday season already in full swing. It reminded me of the challenges that retail, especially the bricks and mortar version, continues to experience. And I wondered how retailers had fared during the recent Black Friday through Cyber Monday promotional period.

In doing some quick research, I found out that the period delivered a higher number of shoppers in the US than expected – 174 million Americans. Although it appears these shoppers spent more this year than last year, 60% said their purchases were driven primarily by sales. This annual discount period that retailers have created is succeeding in delivering traffic and transactions, but at what cost? In 2017, the discounts were offered earlier and went deeper than last year, thereby setting consumer expectations that they will see even better deals further into the holiday season. The question begs to be asked, “how low can they go?”

This problem is one that retailers have been facing and, ironically, fostering for years. The cumulative impact of this discount-dependent purchase behavior is that it can decimate a brand’s perceived value. As Robin Lewis (a retail strategist) said, back in 2012, “The paradox is that while the retail consensus is that consumers are ‘hooked’ on the ‘drug of sales,’ the longer and more persistently brands and retailers ‘push’ the drug, the more the process becomes an implicit admission that their brand or store is worth less.” And once they have reached that point, it’s something that can rarely be reversed.

Discounting is not the only problem plaguing retail these days. Consumer preference for online shopping continues. In this year’s Black Friday to Cyber Monday results, one-quarter of shoppers shopped in-store only, 40% shopped both in-store and online, and one-third shopped online only. Online shopping delivers a double-whammy to retailers. It makes it super easy for consumers to buy at the best price, plus allows them to bypass the in-store experience. When it comes to shopping, there are definitely times I like to avoid stores, especially during heavy promotional periods when the experience can be very unpleasant. But for a retailer, the store experience can be an opportunity to add some value back into their brand. While they can try to create value through their online experience, the in-store experience is becoming a missed opportunity more often. 

As Seth Godin said, “The buying race is over. Amazon won. The shopping race, though, the struggle to create experiences that are worth paying for, that’s just beginning.” And some retailers are taking that to heart. For example, there’s a mall in Los Angeles that is attracting customers by giving them what they want—new discoveries and unique experiences in a photo-worthy environment. The results speak for themselves, as their tenants are on track to hit an average of $850 per sq. ft. in annual sales in 2017, compared to an estimated $165 per sq. ft. for shopping centres nationwide. Their focus on surprising and delighting consumers is paying off so well that they’re expanding at a time when many other retailers are going out of business.

As Warren Buffet once said, “Price is what you pay. Value is what you get.” With such a discount-heavy approach, most retailers have trained consumers to base their value squarely on price, and expect nothing more. And that has resulted in the “race to the bottom” that’s driving retailers out of business. However, there are some retailers who have created value for the consumer by delivering more than just deals. These stand-outs don’t need discounts to compete and succeed. They have broken the cycle and will reap the rewards of true value creation. 

Blog , Grocery Industry
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