Once again discounting was a major theme in the run up to Christmas. I personally like to get my shopping in early but was acutely aware of when my favourite shops were going to go on discount.
Selfridges may only discount intermittently but I know when that is! However, the question that retailers are increasingly posing is: would loyal consumers like myself continue to buy even if the discounts went away?
For many it can be hard to move away from discounting, especially when you’ve built a reputation for doing so. There are certainly some shops that I would not feel that I was getting value for money if I paid full price, and that is a hard perception to shift. For example, if I needed a white candle or pillow I would very much expect at least a 20 per cent discount from a certain retailer...
However, for other retailers an offer or a discount would not necessarily affect my decision to buy. 50 per cent of sales come from 10 per cent of customers, these are loyal customers who will buy certain brands or products regardless. These loyal customers believe in the value of the product or proposition and it is important for retailers to protect these customer relationships and reward them for their loyalty.
No one likes to find out that expensive item they bought last week is now on sale a week later. Retailers with predictable sales periods and targeted promotions will maintain customer loyalty. Transparency around sales periods allows customers to plan their spend, and exclusive offers for regular buyers maintains loyalty.
Retailers are collecting large amounts of data on the shopping habits of their customers and should be using this data to personalise their offerings and add real value to their customers. There is no doubt that targeting is getting smarter - however it will be interesting to see how retailers react to the new data protection regulations and if they have done enough to make sure that the new rules don’t impact on their ability to engage effectively with their key customers and targets.
For some, broad discounting can alienate core customers while attracting unprofitable ones; for example, those who will only buy at a steep discount during the festive period. As we move into Spring many retailers will be asking: did the maths pay off?
As accountants it is not surprising that we like numbers but, joking aside, it is important to know if the volume uplifts achieved from promotions were enough to offset the decreased profitability.
Knowledge is certainly power. In the next month or so many retailers will start thinking about the 2018 festive period. It is critical to know your discounting policy prior to buying season. If you are going to decrease promotional activity then it is inevitable less stock will be shifted.
Fat face were recently quoted in the press regarding the success of their strategy to slowly move away from discounting over a period of years, 'We didn’t do it overnight – if you go cold turkey you are going to get the shakes'
Clearly you can’t turn the tap off overnight if it is what your customers have come to expect. But a long-term strategy to decrease promotional activity, while keeping those key customers loyal, can be successful.
While it remains a difficult environment, there is a sense that universal discounting has reached its peak. Will 2018 be the year retailers fight back?