December 02, 2013

When Discounting Doesn't Work

Ok, so sales dropped last weekend (click here to read).

Can you honestly say that the economy is any worse this year than last year? Or two years ago? Or three, four, or five years ago? Black Friday - Cyber Monday sales increased at the bottom of the economy in 2008/2009. You can't blame this sales drop on the economy, can you? The economy is perpetually awful, it was in June as well, and you weren't hearing dire predictions in June.

Discounting takes you only so far. You keep offering more and more promotions, then you push promotions earlier to steal business, and then the whole thing starts to crater.

If you discount more, and sales drop, what do you think happens to profit?

Don't you find it funny that omnichannel and discounts are supposed to save us - and then when you enter the most omnichannel environment ever, with the deepest discounts available, sales drop?

Meanwhile, Amazon is preparing to fill the sky with drones designed to deliver products to your home in thirty minutes. Imagine waking up in suburban Seattle, and having Mt. Rainier blocked by thousands of drones delivering Amazon products?

You get the feeling that 2014 is going to be the "Year of Merchandise". It HAS to be. We have no choice. We're in the process of destroying the businesses we work for with insane discounts and promotions.

One major apparel retailer (one you know) offered my family 40% off on Wednesday, 50% off on Friday, 40% off on Saturday, and 50% off for Cyber Monday. God help you if you bought on Saturday ... or if you only got 30% off when you purchased early last week, or if you were stupid enough to pay full price two weeks ago. At some point, we are teaching the customer NOT TO SHOP, because, as a customer, we're afraid we're going to get ripped off.

Another major apparel retailer refunded my family $$ because we were able to show that deeper discounts were offered after a purchase. Yes, we were ripped off. And the apparel retailer (one you know) acknowledged it.

The level of modern discounting causes trust issues. We simply cannot trust businesses anymore. Discounting erodes trust.

Black Friday / Cyber Monday / Deep Discounts allow trade journalists to hype the season, driving page views to their stories, causing advertisers to pay for ad space in their publications, causing the trade journalists to make money. Of course the trade journalist is going to champion 60% off - more people read her story if she runs with deep discounting topics than if she runs with merchandising topics. She gets paid when you suffer.

How do you make money? Certainly not by offering 50% off products that have a 60% gross margin.

Merchandise.

Get back to the basics, before it is too late.