Let’s face it: We are in an era of the price-conscious consumer. Stung by the recent recession that won’t quite finally, forever, go away once and for all, consumers are primed to find the lowest price at nearly every turn. Retailers, also stung by the recession and the iffy recovery, are largely catering to this hunger for deals. This situation was never more obvious than this past holiday season, when retailers pumped up the offers to the detriment of their bottom lines.
The holidays are over, but the price consciousness is not, and the consumers seem to have the upper hand. Here are a few things to keep in mind about this climate:
Consumers have more tools than ever before. In many ways, retailers have lost control over when to “have a sale.” Even companies like J.Crew, which had infamous yearly or biennial sales that customers would wait for and flock to, are now mined by sites like Hukkster, RetailMeNot, Tradesy, and Shop It To Me.
In fact, the founders of Hukkster, who both once worked at J.Crew, used the retailer’s “sales cadence” to alert consumers to the fact that temporary discounts are made to certain items more than 15 days out of each month and that sales codes are available every week. This could only amp up the number of takers for those discounts and deals, for better or worse.
Consumers have certain expectations. The experience of J.C. Penney is telling when sussing out what’s in the head of today’s price-conscious consumer. The company in 2011 hired retail guru Ron Johnson, formerly of Apple Inc., (a retailer that is notoriously discount-averse), to boost sagging sales. One of the first changes he made was to dismantle the heavy discounts-upon-discounts tagged on rarely paid original prices, replacing that with moderated prices and fewer sales. While the prices anyone paid per item were essentially unchanged, the psychological shift was too much. In the end, the new pricing strategy was one of Johnson’s largest failures during his short tenure and is often mentioned as a factor in his subsequent ouster.
Take away? Deals, discounts, sales — they’re addictive and, right now at least, the discount-available atmosphere is the new normal, at least for the moderate-income consumer.
There’s a psychology to discounting. As J.C. Penney found out, there is a psychology at work here. A discount-focused shopper is a less loyal one (“I found it cheaper at Target, so I’ll get it there instead.”), and most consumers do enjoy some thrill of a low-price discovery. So, as retailers work hard these days to keep loyal consumers through personalized messaging via email, apps, and social media, offering discounts can be a delicate game. Price-matching policies help, though they chomp at the bottom line. Recent research at Stanford’s Business School even shows that targeting customers with personalized discounts doesn’t work as well as more generalized codes and sales because consumers love the discovery of a deal. This was partly the reason J.C. Penney customers felt cheated, even though they were likely encountering the same prices after Johnson’s policy was installed.
Smaller retailers are discovering that daily deals hurt profits without creating steady new customers. Groupon Inc. is struggling to maintain its original customer base, in part because there are so many discount dealers around and in part because the emailed daily deal isn’t quite the thrill it once was. But another reason comes from the retailer side. Companies, especially smaller retailers found that bringing customers in for a money-losing deal didn’t have them coming back for more at a money-making or even break-even price.
What’s in it for retailers. Working with sites like Retailmenot, Shop It To Me, Hukkster and others can yield information about your customers — how they look for price reductions, when they look for coupon codes, and what their preferences are — and help move inventory, even specific colorways or styles that would be difficult to individually discount in a catalog or on the floor. Sales, as many retailers found during the holidays, can be a good lure, can create a sense of urgency, and can keep your customers from drifting off to your competitors.
Most importantly though, when integrated into a customer-friendly, customer-responsive omni-channel marketing program, pricing can be part of an overall way to work with your customers while keeping them loyal to you. Retailers must acknowledge consumers' savvy and their price-consciousness and work with that, but they can also work to create offers that are not just about discounts. That can mean having a conversation, of sorts, with your customers about value, and not just price.
