Let’s Make A Deal

10 09 2012

Give a man a fish, he eats for a day. Teach a man to feed on discounts, and you’ll never earn a profit again.

Or so the thinking goes, especially since the last recessions spawned a whole new breed of discount addicts.

Now I will never look a gift retailer in the mouth. A good deal is a good deal, and I love them as much as the next guy. But once you start conditioning customers to expect bargains, they come to look for them all the time.

And won’t buy unless there is a steep discount.

It all sounds so good on paper. Offer nice discounts, either storewide or on key items, and watch the crowds come a-shopping. The only problem is, shoppers learn quickly, and if you give away the store for long, they begin to think it is the norm.

Maybe that’s why Apple is so insanely profitable. They don’t give away anything. Their prices are high, all the stuff is Made in China, and sales (modest though they may be) only occur once they have introduced the latest, greatest version of oh-so-cool iPhone or iPad.

Would anyone like some Kool-Aid?

But Apple is in a league all its own. Let’s talk about companies like JC Penney, which has had some…ahem…major problems of late trying to find its price niche. Once locked in the predictable weekly massive blow-out sale pattern typical of its competitor Kohl’s, it switched to EDLP (everyday low prices) this year in an effort to stave off red ink.

And so far it has fallen flat. Who wants the even more predictable promise of regular low prices?

Sales are the meth of shopping, and it is easy to get hooked. The problem is that the dealer (in this case, the retailer) cannot afford to keep giving the drug away. And if JC Penney can’t figure out how to put some excitement into EDLP, it’s going to be in big trouble. Because customers aren’t buying.

What may have been a good strategy and pick-me-up during the recession is not a long-term plan for prosperity. If anything, some retailers over-did it on the sales to try to make it through the short-run, while at the same time digging potholes for the long-run. A deal-prone consumer is hard to re-train. It’s going to take some smoke and mirrors, and substituting intangibles like old-fashioned service, to entice these always-a-deal shoppers to belly up to the bar of regular prices (whatever they may be).

It is regrettable that some retailers have forgotten the definition of a sales promotion: it is a short-term inducement to buy. But the caveat is (and there’s always a caveat) that these sales promotions should not be run so frequently as to become predictable, thereby encouraging shoppers to never buy at regular price. They should be seemingly random opportunities to get all motivated, and run out to buy the product. But if it all starts to resemble Pavlov’s dog, we have a problem.

Never mind the fish. Show me why I need to give you my money.

Dr “Sale Away” Gerlich

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