By Jennie Yoon, Founder & CEO at Kinn, modern heirloom jewelry brand, made to last a lifetime — then, now, always.
Between a global pandemic and major cultural shifts, shoppers rightfully have pressing matters on their minds right now. This has caused significant financial challenges for brands, and according to the experts, the road to economic recovery will be slow. With piling inventory, many companies — even brands like Everlane that rarely mark down products — have recently offered deep discounts to bridge the way through the crisis.
Thus, business leaders face a dilemma between joining the discount frenzy at the risk of damaging their brands and continuing to sell at full price at the risk of alienating customers who are nervous to spend during these trying times.
Choosing whether your company should discount is just as much a brand decision as it is a business decision. For some businesses, discounting is the key to success. Just look at Coca-Cola, which used coupons for a free soda to put its beverage in the hands of 1 in 9 Americans between 1894 and 1913 and went on to become one of the most famous soda brands in the world. For other businesses, especially luxury brands like Louis Vuitton, not discounting maintains the esteem and price points of their products.
While discounts serve the short-term need to preserve cash flow and promote the business, we know from brands like Banana Republic and Macy’s, which never fully recovered from discounting their products through the 2008 financial crisis, that devaluing products can train customers to expect lower prices. Discounts can break the trust of loyal customers who are left wondering, “Why did I ever pay so much for this?”
When discounts become frequent or predictable, they train customers to wait for the next sale. We’ve seen this in e-commerce abandoned carts and at brands like Bed Bath and Beyond that price their products knowing their customers will only buy with a 20% off coupon. It can become a vicious cycle.
However, in some instances, especially in the last few months, discounting is a means of survival. There is no way to forecast when everything is unpredictable. Brands have faced the perils of the unknown and have had to choose between doing business as usual and doing everything they can to maintain cash flow, keep staff employed and find a path through to the end of the pandemic. If the business doesn’t survive the crisis, neither will the brand.
But discounts don’t have to just be a means of survival. A discount can be a way to engage new customer segments or promote new products. When brands get creative with discounts (not every discount has to be the classic percent off), they can enhance the brand experience rather than cheapen it.
Clearly, there is no one-size-fits-all approach to discounting products. It’s not binary, either. The type of discount, to whom it is available, how it is communicated and other little details in execution can make a big difference in how shoppers respond. A strong brand can carefully execute a discount and be better off for it, but if a discount is mishandled, a brand can experience long-term consequences to its bottom line.
The key consideration is how the discount infuses value back into your brand, rather than devalues it. Take a look at the following types of discounts and how they strike a different motive for the consumer while increasing cash flow.
1. Discount old inventory only. By limiting your discount to old inventory, you keep the value of new products intact while engaging the bargain-hunting crowd.
2. Discount one specific product per week. This will emphasize urgency and keep customers coming back week after week.
3. Offer ‘spend $ , get $ ’ gift cards. Get your customers to hit a price target, and they will likely shop again in the future.
4. Offer email capture discounts. Offer a discount in return for the opportunity to regularly engage with customers in their inboxes.
5. Hold a sample sale. Engage bargain shoppers without devaluing your retail products.
Piecing apart the impact on business and the impact on the brand, and finding a way to satisfy both, is no easy task. Businesses should look for holistic solutions that serve both needs. Discounting haphazardly is just that — a hazard. But with careful consideration, a discount can help a brand grow with the times.
Whether or not discounting is the right tool for a business to pull through the current challenges, long-term success will depend on factors including consumer trust and enthusiasm for the brand. This should be the center of your discounting discussion.
Unfortunately, there’s little data to guide us. We’ll have to experiment and morph as we learn more about consumer spending in this new normal, and be even more attuned to cultural changes than ever before.