It’s no news to retailers that over-discounting is a problem. Just two adverse effects that lead to plummeting bottom lines include setting customers up to expect to only buy on discount and (thereby) reducing the perceived value of your brand.
In the following three-part blog series, we’ll investigate three challenges on the road to maintaining healthy levels of discounts and promos
Each of these represents a unique challenge, but each can be overcome by aligning your marketing, merchandising, and finance teams on a trajectory charted by data-driven customer insights.
And if you either don’t want to wait or you want all this information in one place, you can check out our new book, In Discounts We Distrust.
Problem 3: Healthy, Full-Price Growth
Retailers don’t only face external pressures, but internal pressures as well. Success in retail is largely measured by whether a brand meets its comps and achieves year-over-year revenue growth. This has become more difficult as e-commerce has risen to prominence, and a growing number of traditional retailers are turning to discounting as a means of keeping the ship afloat.
Though ill-advised, this is certainly understandable, because, as mentioned above, discounting does drive sales increases—in the short term. Of course, with these increases come customers who are habituated to paying less than full price, meaning it’s imperative for retailers who use promotions for a short-term boost do so in a way that is as minimally habit-forming as possible. That means crafting promotions that lay the groundwork for some sort of longer-term brand engagement and don’t signal to customers that a one-off sale is an indication of the new normal.
Short-Term Solution: Design Promotions Strategically
There are a number of promotional strategies that fit this bill. First, tiered discounting offers—where customers receive a higher percentage off the more they spend—satisfy customers’ promo addiction while driving up your average order value and increasing basket size.
Tiered offers also tend to nudge customers to explore product categories that they otherwise wouldn’t. A customer who needs to spend another $15 to unlock a higher discount is more likely to grab a random $15 accessory than a $50 blouse that, in normal circumstances, they’d prefer.
Second, bounceback offers (where customers making a purchase are promised a discount on their next purchase, provided they make it within a defined time frame) are effective urgency generators that don’t set up nonstop promotionality. As is the case with most promotions, the more targeted and strategic a bounceback offer, the better.
For instance, category-specific bounceback offers—where a customer purchasing a product in Category X is offered a discount on a purchase made in Category Y in the next 30 days—are an excellent way to encourage customers to expand their relationship with your brand.
Finally, the shrewdest retailers realize that not all promotions must be monetary. Whether by offering expedited fulfillment and shipping on online orders, early access to new arrivals, or one-on-one consultations with a personal style assistant, enterprising retailers are finding myriad ways to incentivize brand engagement without relying on a dollar- or percentage-off offer.
By facilitating more meaningful brand experiences, non-monetary promotions help build brand loyalty around factors other than price—something that is essential to achieving year-over-year growth.
Long-Term Solution: Explore New Revenue Streams
When we look at retailers that have managed to achieve year-over-year growth over the long term, rarely do we see that their success stems from doing any one thing better than their competitors. They aren’t able to consistently level up their sales simply by figuring out the perfect tiered discounting formula or crafting the cleverest promotional messaging.
On the contrary, these retailers integrate customer insights into the foundation of their business. Data-driven insights inform everything: from which customers they aim to acquire and how they build and maintain loyalty to where they spend marketing dollars and how they use product development to create a strong brand identity.
There’s arguably no better example of bold customer-centric decision-making than Bonobos. In 2012, the e-commerce retailer started to explore the idea of expanding into the brick-and-mortar space, a provocative proposition considering that its competitive advantage was premised on the low overhead of having no physical footprint.
Nevertheless, Bonobos was convinced that if it could get its customers to engage with the brand in a more meaningful, hands-on way—by, for example, giving them the opportunity to get custom-fitted for a garment or interact with a knowledgeable product expert—it could unlock an unprecedented level of brand loyalty that would send its sales through the roof.
As such, the retailer opened two pilot Guideshops in New York City and, in a matter of months, saw its intuition proven correct.
Much to external observers’ surprise, Bonobos discovered that customers who visited a Guideshop—especially those who visited before making their first purchase—turned out to spend more, buy more full-priced items, and have longer relationships with the brand than its average online customer.
Bonobos was able to exponentially increase the lifetime value of many of its customers simply by providing them with a hands-on brand experience. Six years on, Bonobos now runs dozens of Guideshops around the country and continues to enjoy robust year-over-year growth despite contending with an ever-expanding set of direct competitors.
Re-envisioning Customer Centricity
Retailers can hardly be blamed for caving to consumers’ increasingly strident calls for steeper and steeper discounts. From ballooning inventories to heightening competitive pressures to demanding growth imperatives, today’s retailers face a variety of challenges for which discounting promises to be a panacea.
Unfortunately, as illustrated above, this is a decidedly hollow promise. Successfully navigating consumers’ promo addiction—over both the short term and the long term—requires more than just feeding it. Retailers like Zara, Crocs, MM.LaFleur, and Bonobos are thriving precisely because they’ve reduced their dependence on promotions.
Granted, doing so isn’t easy. It entails weaving data-driven decision-making into the very fabric of a brand’s identity. When done well, you can put your customers’ wants and needs at the heart of everything—empowering them to drive full-price sales year in and year out.
This retail transformation doesn’t need to happen overnight. Plucking the low-hanging fruit—lookalike modeling, discount-sensitivity segmenting, strategic promotion design—is vitally important. It just shouldn’t be your endgame.
At the end of the day, in retail, customers come first. The sooner retailers recognize that obsessive customer-centricity can take the shape of meaningful brand experiences as easily as unbeatably low prices, the sooner the industry as a whole will shake the notion that consumers’ promo addiction is tantamount to the death of retail as we know it.
For the full scoop on destroying the discounting downward spiral, get our book on it, In Discounts We Distrust.