Inconspicuous Discounting
I was browsing in a well-known North East department store this week when I spotted a winter coat that I have had my eye on for some time. Having decided to splash the cash, I was surprised to find a 20 per cent discount applied at the till - a welcome surprise! But there were none of the usual “sale” signs obvious within a store that was busy without being buzzing.
I took the discount without blinking but an article in the Financial Times today reminded me that the inconspicuous sales are becoming more frequent especially among niche retailers towards the higher-end of the retail market. Luxury shops are making greater use of private invitation-only evenings where valued customers can be wined and nudged gently into pre-ordering new products or persuaded to buy up some of the excess stock.
Here is the link to Sarah O’Connor’s piece on discreet discounts.
Just a few months ago sales of luxury products were thought to be immune from the ravages of the credit crunch. But the collapse of investment banks, a steep decline in city bonuses and thousands of job losses in financial services have contributed to a sharp fall in demand for high-value luxuries. The income elasticity of demand for such goods ought to be strongly linked to the economic cycle - we are seeing growing evidence of this now.
But for retailers selling top-end brands who have rarely had to use deep price discounting to shift modest amounts of stock, these are unchartered waters. The danger is that if they cut prices too far their customers may begin to anchor downwards the prices that they regard as a fair reflection of the quality of the products they are buying, and perhaps devaluing the excitement of buying a specific brand?
Price anchoring is an important feature of the behavioural patterns of consumers - I wrote about it in June with a blog about the pricing of the iPhone. - for products such as jewellry, designer clothing, the best seats for the theatre, perfumery and bespoke furniture (there are many other examples) the first price you experience for a product when you enter the market can act as an anchor for what you might be prepared to spend the next time around. The luxury retailers will want to avoid a situation where an eventual economic recovery might start with consumers having lowered significantly their price expectations for discretionary purchases.
Perhaps that is one reason for the invitation-only events for regular customers. The luxury shops are happy in the current climate to offer a generous discount but they want to keep it under wraps reserved for people who they know will return when demand and prices are back to normal levels.
Are we tempted by deep discounts?
Car hire firms, hotels, cruise companies, laptop manufacturers, online retailers - they are all at it. The weakness of UK retail sales confirmed by some of the worst figures in recent years from the British Retail Consortium is prompting a renewed bout of deep discounting by businesses desperate to improve their cash flow and maintain sales volumes during the descent into recession. Pre-Christmas sales have been brought forward (to judge from one pleading email from Play.com this afternoon - forget it I use Amazon by default!) and an ‘unbeatable’ offer from a well known car hire company offering a rate of just £18 per day for a three-day mid week rental. I always thought that Hertz Van Rental was a famous WWI pilot?
How sensitive are we to these price discounts?
I suspect for hard-pressed teachers slogging their way through the November marking mud, the generous discounts on city breaks will be especially attractive.
And the incredibly cheap prices for new laptops from the likes of Dell are enticing although they serve to remind me of just how much I paid for my last notebook just under three years ago!
For most retailers it is a time when cherished profit margins are sacrificed in the search for saavy consumers. And it is a response to the flight towards discount shops at a time when household budgets have been put under an enormous squeeze.
Sales in bricks and mortar shops are declining - but online sales are defying the recession and taking up a bigger slice of total retail sales. This piece by Rory Cellan Jones asks whether the high street will survive the online onslaught?
Will price discounting help restaurants survive the crunch?
If eating in is the new going out, life is going to get really tough for hundreds of mid-market restaurants in the months ahead.
Hard-pressed consumers hit by a potent combination of falling property and share prices, declining real incomes, a slump in confidence and fears of huge job losses, are cutting back on non-essential items in their monthly budgets. They are eating out less or perhaps switching to lower-priced chains that – on the plate at least – seem to offer better value for money.
How can restaurants respond to the threat posed by a fall in discretionary spending?
Price anchoring
There is a really good article on price anchoring and the iPhone in the Washington Post today.
read more...»Canny pricing in a slowdown
There is a super feature on pricing strategies from Adam Jones’s management blog on the Financial Times web site - available here
Canny businesses are willing and able to adjust their pricing strategies to suit ever changing business consumers. The key seems to be in having good market intelligence about which consumers have a demand that is sensitive to price and those who spending on goods and services is affected more by changes in real take-home income. Deep discounting is often observed in an economic slowdown or outright recession as businesses look to shift unsold stock, maintain sales volumes and generate extra cash to tide them through the tough times. But as the FT blog points out, offering discounts to consumers can risk unleashing an unwelcome price war (which damages profit margins) and overly-aggressive discounting can ultimately damage the brand.
There is a bit more on pricing do’s and don’ts in a recession here
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