For many shoppers, finding the killer deal is practically a moral imperative. I know this first hand. By the time I was 8 years old, I had a full-on obsession with prices. I looked forward to the circulars arriving at our front door and took it upon myself to review all of the grocery ads and to make a list of the best prices at each store each week, which I presented to my parents as a buying strategy. I had a running tally in my head of what things cost and I was on a constant lookout for when they dropped below that bar. This was a worthy exercise.
As much as I love a good deal, over the past seven years, the world of retail has seen a disturbing trend: an obscene level of discounting. This tsunami of overly discounted goods flooding the market is not good for brands. Nor does it benefit the ecosystem of employees and suppliers who count on a brand’s cache to survive. Retail has reached a crisis point, brought on by this over-zealous discounting. It’s time to step back and ask, what’s driving this discount craze? How can we be more strategic about it so as not to devalue the brands that companies spent many decades building?
Others have felt this crisis as well. Currently, there seems to be an unspoken wisdom from mid-market DTC luxury brands that “discounts are bad.” We even see brands try to claw back discounting strategies that helped with topline revenue prior but decimated their brand value. This vibe is the impetus of why I am writing. DTC brands are putting a stake in the ground against discounting mania while the rest of the world burns prices to the ground. Is there a happy middle ground? My view is this: discounts should primarily be used to attract new customers and reward existing customers.
There are many reasons why consumer products are getting super cheap. One is the rise of factory outlets and off-price strategies. According to Consumer Affairs, the US has over 216 factory outlet centers, where some 316 different brands operate 13,000 stores. That’s over 200,000 square feet of discount shopping space. Consumers are lured to these outlet centers with the promise of huge discounts; shoppers have reported finding items at Nordstrom Rack that cost just $.01 (and no, that’s not a typo). Additionally, the rise of stores like Ross, TJX, and Burlington has put pressure on retailers to either cater to the lowest possible price point or see yet another customer find a reason to go off-price.
Passive commerce, a trend we’ve been covering on the show since 2016, also puts downward pressure on prices. Passive commerce happens when customers keep their eye on an item they know they’ll buy at some point, but are in no hurry to pull the trigger. Passive shoppers are happy to wait until an item goes on sale for the price they had in mind, and with internet alerts, they don’t even need to actively monitor sales. A Viant study from a couple years back showed that passive commerce even "can persuade customers away from CPG loyalty brands.”
So as outlets allow consumers to fill their closets with cheap stuff and passive commerce lets people hold out until the price is right, however one must ask: who does this race to the bottom ultimately benefit? Some might suggest the consumer, but that’s debatable as the current accrual of stuff is practically an epidemic. And it certainly doesn’t benefit any brand that wants its customers to value it over the long haul.
Recently I visited a Gap in my hometown and found several pairs of pants that had been reduced to just $5.00. This is ridiculous, no pair of slacks should cost that little. A $5.00 pair of pants feels inherently like a throw-away product, something that isn’t to be valued. You could buy them, wear them just two or three times, and not regret tossing them before they even needed washing (you’re such a George Costanza). Of course on top of degrading the Gap brand, there are real environmental and societal costs to throw-away fashion.
Some luxury brands are opposed to discounts for any reason, preferring to destroy unsold items rather than put them on a sale rack. This is a bit crazy (and harmful to the environment). Rather than set unsold inventory ablaze, these brands can consider doing things like leverage a secondary market that they own and operate. Or they can distribute them via partners with thredUP and The Real Real. There are other creative ways to release products into the market without devaluing pricing strategies or brand cache.
As I mentioned earlier, DTC brands are successfully bucking the discounting tide and we can learn from these bold players. For instance, take Away. Their carry on suitcases range from $225 to $295, which is twice the cost for a comparable Samsonite carry on, but $3,200 less than Gucci. They have gone to considerable lengths to create an aura around the brand, and want consumers to know that when they buy an Away bag, they’re buying into a particular lifestyle. For this reason, Away is loath to offer deep discounts. When they do offer promotions, they’re limited in scope and generosity.
MAC Cosmetics, a brand that has a cult-like following, also eschews discounts, except during the holidays. And the reverse is true for other brands such Patagonia, Allbirds, and Harrys.com who explicitly refuse not to participate in the Black Friday/Cyber Monday madness.
Discounts are clearly useful for customer acquisition, especially for products that are purchased frequently and are more expensive than mass market brands. We see a lot of DTC brands offer discounts to all new customers, such as Everlane’s promo of free shipping on the first order. The beauty of this strategy is that it provides new customers with an incentive -- free shipping -- without lowering the cost of its products, which is tantamount to degrading its brand.
Discounts are also a great way to say thanks to existing customers without hurting the brand. Nordstrom used to do a phenomenal job with their clearly scheduled annual and semi-annual sales. Every Nordstrom shopper understood that the annual sale was their moment in time to save money on the products they already loved. It also was an opportunity for potential customers to dip their toe into the Nordstrom world.
The key here is self-worth. You need to value your own products or assortment. If you tell your customers that you view your product as clearance-worthy, they’re going to view your product as a discounted product. Whereas if you have a last season or previous model repricing or a rarely scheduled sale and your customers feel like they were the lucky few to have scored the remaining items - this is a completely different outlook.
To be clear, I am not suggesting that lower priced offerings should not exist. Price your product appropriately, but don’t let your discounting strategy degrade the value of what you made, because once you do, neither the product nor your brand will be valued. When you take $45 off a $50 pair of pants it reflects poorly on your brand and on the value of the item.
Consumers should value what they buy, and it’s your job as a marketer to make them understand the value of what you made, even if it’s a low-cost product. Target excels at this, as we’ve seen through its Design for All Collaborations. This past summer the company announced it would re-release the iconic pieces of the past two decades to celebrate the initiative’s 20th anniversary. Fashion magazines warned their readers to “guard the credit cards.” Design for All is, and always was, meant to be low cost, and yet the clothes that came out of the collaborative are treasured and collected by fans.
To reiterate: consumers should perceive a certain level of value from every product they buy, regardless of where that product sits in the market. Pricing plays a huge role in that perceived value. Deep discounts cheapen a brand; strategic ones say “thanks” to loyal customers and lower the barrier to consumers who are completely new to your brand. Longevity comes when the price is right.