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The discounting black hole: how to avoid getting sucked in

Coffee Shop

Author: Olivia Jackson, Senior Account Manager

To most consumers, discounts are bountiful and easy to find. To retailers, in the wake of a bumper Black Friday, Cyber Monday and last-minute discount frenzy, discounting can cut deep into the bottom line.

Yet deep discounts across a plethora of sectors, including retail, food and beverage (F&B) and hospitality, are now to the norm to consumers. But the market is shifting, with recognition that chasing sales can come at the expense of profit, and it’s no secret that the High Street footfall is struggling.

Steve Rowe from M&S recently commented: “The long term [impact] of discounting is that customers don’t trust your value,” which is applicable across most sectors – not just retail. Demonstrating differentiating value is more important than ever in changing consumers’ expectations.

Moving away from discounting can and will be hard for a lot of retailers and brands. Consumers have a pre-conceived notion that they will be able to access a discount as standard, and there cannot simply be a hard cut-off from brands. However, if brands take back control of volume discounting in the marketplace, and choose their channels wisely, discounts can be used to leverage quiet day parts, underperforming verticals and limited product promotions.

When thinking about your promotional strategy, consider the following three alternatives to deep percentage discounts or money-off promotions:

Quality

What is so often forgotten is that consumers are willing to pay more for a quality product, regardless of sector. Compared to adopting an ‘everyday low price’ (EDLP) strategy, more premium retailers and brands can convey the quality or their products, standing firm in the face of competitor discounts by shouting about the value for money consumers are already getting.

Jumeirah Beach Hotel general manager, Sven Wiedenhaupt, recently highlighted that brands should be highlighting the quality of their products in proportion to any discounts they might offer. This is especially relevant when considering research has found some consumers see a high price discount as a signal that they may receive a low quality service. If a non-EDLP retailer or brand chooses to continue to discount, it should do so at times of the day or week that naturally need a boost, instead of devaluing the proposition by never selling at full price.

Reward

If someone dines three times in a two-week period, it pays to reward behaviour with an added value proposition: this could be a free starter or dessert next time they dine, and not necessarily a discount. To F&B and hospitality operators, this can not only drive an extra visit and item per visit, but also builds all-important brand loyalty in a time of stiff competition and hard-fought footfall. By using promotions or other incentives to collect consumer data on visits, any retailer or brand can start to personalise communications and offer better rewards beyond monetary discounts that can increase engagement and frequency.

Brands

Give brands the opportunity to encourage adoption and consumer acquisition and engagement through your restaurant, hotel, store or supermarket. For example, you could attract brand-funded marketing spend to drive visits by offering a free drink or complimentary product that is paid for by the brand. Using coupons to redeem the offer can also generate valuable data that can provide insight into who is redeeming and where in real time. But the unique code is also effectively ‘burnt’ at the till, eliminating the possibility of future voucher mal-redemption.

While promotions will always serve a purpose for brands and consumers, the discounting black hole is one that can be escaped through a robust marketing strategy that focuses on product quality, with a reduction in promotional activity over a phased period of time. More accurately tracking existing campaigns that encourage ongoing engagement via unique codes and real-time redemption statistics can support a better informed and more profitable data-driven marketing strategy.

If you would like to develop a robust promotional strategy using unique coupons, please get in touch.