The Scourge of Discounting – Why are we not Fitter?

Before we start this week’s Doctor’s diagnosis, as regular readers of the Doctors Diagnosis, I would like to invite you to our next Retail Doctor Breakfast Event, Customer Connectivity – 2010 and Beyond.

This breakfast seminar will explore trends in consumer behaviour and draw on global and local best practise to give you the tools and knowledge you need to connect with your all important customers. The breakfast will be in Melbourne on 29th July and Sydney on 31st August. Visit www.retaildoctor.com.au/events , email louise@retaildoctor.com.au or phone 02 9460 2882 for more information and to register today.

Do you remember that wonderful saying by Adam Urbanski?

“If we always do what we have always done, we will get what we have always got”

Mid season, end of season, end of financial year, pre-christmas and post-christmas sales mean that there is barely a month in the year that isn’t a regular sale period for many of our major retailers. People are starting to pay full price less and less often and preferring to wait until one of these sales come up, and there’s never long to wait!

Why is the retail sector so full of discounting? Is it because we aren’t offering real alternatives to our customer base? Is it because we have always done what we have always done?

Excessive discounting over sustained periods of time is an unhealthy and unfit business practice, often creating the unfit perception that we experience today. People begin to lose trust in the brand, believing that people won’t buy at full price and that margins must be too high.

Some discounting is necessary and should be used as a sales building strategy as distinct from an inventory clearance play. Let me clarify by expanding on the way that “fit” businesses avoid discounting for clearance.

‘Fit’ retailers are constantly innovating and refining their customer experience.

It’s not hard to see that many of our leading retail brands have the same physical branding and shop fit outs that they had 10 years ago. It’s equally not hard to see the same go to market approach in shop treatment, layout, product range, people model, merchandising assortment. These businesses are gradually becoming increasingly unfit without even knowing it.

So what do unfit retailers do when it comes to discounting?

Drop the price – Discounting as a customer strategy becomes the new norm as brand and margin degradation sets in.

Reduce staff costs – Reducing staff hours and hence costs is proven to be among the most effective sales reduction strategies available. Visit a department or discount department store these days and wait for a staff member to approach you, this is not a reflection on the staff member’s service skills; rather, it is evidence of the fruitless exercise of reducing staff costs. This overreaction to a decline in top line sales to expectations in the pursuit for short term profit will give only that, short-term profit and be damaging to the longevity of the brand.

Cut back on your people and expect to cut back on the customer experience and in turn sales, focus more on building great focussed teams.

Don’t calculate the margins – Some unfit retailers fail to understand the important relationship between price, discount and sales and often give away vital profit by reducing their margin too low.

Follow the leader blindly – Have you noticed the “follow the leader” mentality of discounting? How many retailers time their “special offer” to match their competitors and the rest of the market? While monitoring competitor behaviour is important, some unfit retailers are ignoring the sale periods that are most effective for their own pricing and inventory strategy.

By heavily discounting all year round, unfit retailers are damaging their brand daily by producing commoditised discounting price offerings. They simply don’t create a compelling experience for their customers in all facets of their retail offer.

Fit retailers on the other hand do the following:

Value innovation – Innovation is a high priority right down to executive KPIS. Why does the majority of innovation occur with new market entrants? Why do we not really value innovation in our retail delivery to market? Rather than slicing prices willy nilly, its becoming increasingly important for retailers to create value in their offer.

Innovative and exciting in store experiences are becoming more and more important in creating a value added offer without discounting the price of the product itself. Eg. Celebrity appearances, fashion shows etc.

Interestingly we see many examples of global retail innovation including our work with the Ebeltoft Group (www.ebeltoftgroup.com) where bringing new thinking to retail is valued very highly.

Inspire lead and manage their customers in new ways – ‘Fit’ retailers interact with their customers in an entirely different manner to the way they did 3-5 years ago.

Does your business really focus on?

• Having a website that fulfils customer orders?  (doing business with you 24/7 is the order of the day)
• A social media strategy is in place and actively managed?
• Knowing and rewarding your top 100 customers by spend?
• Advertise your value add offers to your customers – e.g. tailoring or home delivery
• Measure your service levels- reward and service and sales growth becomes the culture of the business
• Really focus on customer service before profit?
• Create an extraordinary experience with your retail brand through astonishing retail in store experiences.
• Understand competitive trends and consumer behaviour in a way that identifies meaningful trends that you can capitalise on.
• Create a culture of ideas/implementation brilliance and recognition to the ideas whilst challenging the norms of the existing customer experience
• Really understand the science of retailing with best practice technology and measurement disciplines  

The key message here is to innovate in all the offerings to create a direct and rewarding personal experience for your customer. Create powerful brand advocates by just being extraordinary in your entire customer experience. We will look at this in depth at our upcoming breakfast seminar.

Don’t Blame the Referee – It’s the GFC! It’s the economy in Greece! It’s the uncertain political environment! We have heard it all. Whilst there is truth in some of these excuses, there is not truth in all and making excuses isn’t going to increase profits, we must control what we can control.

‘Fit’ retailers understand this and rather than allowing their profits to drop during difficult financial times, they increase service levels and training of staff to generate motivated confident employees which in turn goes a long way to generating motivated customers.

How to reduce or avoid discounting is all about the CUSTOMER.

C          Customer focus and ethos is critical

U          Understand exactly where your money is made and how

S          Strategy is important

T          Tactical delivery at every customer touch point is even more important

O          Ovations are deserved for an outstanding retail experience

M         Multi channel your retail offer. Your customers want to do business with you 24/7

E          Entertain, engage & enthral your customer and price will be forgotten

R          Remember me, I am your customer, reward me for being loyal and I will return

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