Why retailers are wrong to stop discounting

Internet Retailing

27th Sep 2017

It’s been widely reported that the Australian retail industry is in dire straits, with Myer being the latest to admit they’re struggling after profits tumbled 80 per cent. The department store has recently announced plans to roll out a radical new discount store format, like TJ Maxx, in response to ‘discount fatigue’.

Many retailers are simultaneously being urged to break out of the discount cycle because they won’t be able to compete with Amazon on price. Whilst the mixed messages about what’s best for business might be confusing, we’re forgetting the most important element – the customer.

If you think businesses are doing it tough, consumers are doing it tougher. Australian household incomes have grown by less than the price of a coffee a year since 2008. The combination of rising house prices, utility and grocery prices mixed with stagnant income growth has meant that Aussies have significantly less cash to spare when it comes to shopping.

Price is more important than ever to the customer, and moving away from discounts is a step backwards. It would be a mistake for retailers to stop discounting all together, rather they need to be more strategic in their approach.

Aussies still love a bargain, and we know they are increasingly turning to sale periods. MyDiscountDeals.com found that 84 per cent of shoppers feel more satisfaction when they buy something on sale. New research even suggests that one in 10 Australians can only afford second hand clothing. Retailers need to take this into account if they want to draw in the average Aussie shopper.

Retailers are guilty of taking advantage of customers’ love for a discount. Constant, and what at times feels like year-long, sales have worn down customers and turned them away – the exact opposite response retailers want to evoke. In the mind of the customer, a year-long sale doesn’t present itself as a good deal they’d be silly not to jump on. These days, customers are cluing into these strategies and argue if a retailer can afford to sell items at such a discounted price all year round, then they are grossly marking up their products. Proving there can be too much of a good thing.

Consumers not only want discounts, but they want them to be thrilling. They love ‘treasure hunting’ and finding an ‘absolute steal’, because that sense of accomplishment is what they crave from the retail experience. Customers continue to drive a hard bargain, and are finding creative ways to do so. From searching for promo codes online just before check-out, or even waiting until the retailer approaches them with further incentives to complete their purchase after abandoning their shopping cart. Customers want to feel like they’ve outsmarted the retailer, so why not let them.

More targeted sales peaks can drive consumers to retailers at the right time. Having discounted prices at our fingertips does not create any sense of urgency and ultimately discourages customers from interacting with your brand at the times you want them to.

Not all retailers can afford to offer low prices all the time, like Kmart’s model. But events like Vogue Fashion Night Out, which occurs only three times a year, have been successful in driving high levels of traffic and sales to brands because of the ‘rarity’ of such an event.

The likes of Burberry, Dior, and Louboutin usually refrain from regular discounts because it ‘detracts’ from what the brand has built its reputation to embody – exclusivity. But during VFNO, they offer exclusive deals to customers strategically because it adds to the sense of urgency and ultimate satisfaction the customer gets from purchasing high-priced goods below RRP. Retailers need to give customers a sense of power when they find (what seems like) a rare deal.

It’s not about showing your hand; it’s about playing your cards right.

Isabella Marco is marketing manager at MyDiscountDeals.com.