Some companies have an inherent understanding of discounting and promotional strategies. These companies are able to create a strong sense of value for their products and services, even when they are on sale. Their customers feel thankful when they get a given product or service at a low price, yet they still see great value in the brand and would indeed pay more for the product or service in the future.
Other companies, however, struggle with the concept and execution of discounting and promotional strategies, and thereby end up devaluing their brands with each communication and sale. Poorly planned and executed online discount promotions can come off as desperate fire sales that forever scar a brand's reputation in the eyes of consumers. One-time sales very well may become permanent price cuts when companies realize that their customers will no longer tolerate their regular pricing.
In this article, we'll take a closer look at why companies discount their products and services. We'll also review several examples of companies that promote their discounts online without harming their brands.
Before we move forward, let's take a quick look at why companies discount their products in the first place. This list is in no way comprehensive, but here are a few key factors that drive discounting and promotional strategies.
1. Awareness and attention. In today's world of media fragmentation -- with more new products, channels and choices than ever before -- brands that introduce new products are struggling to gain consumer awareness and attention. This struggle is evident not only in the aggressive nature of "pay attention to me" discounts, but also in the sometimes-over-the-top packaging of offers. Whether it's via a corny banner ad, pushy email or poorly executed direct mail piece, many companies have gone to the extreme just to grab a customer's attention.
2. Trial. After consumers are aware of a given product and its value proposition, companies must get consumers to try the product. This can be achieved via multiple means, including through discounts on a consumer's first purchase, free shipping, buy-one-get-one-free deals, etc.
3. Cross-sell or up-sell. Once consumers try a company's product, the company will naturally want to get them to buy more of that product or something different. But not so fast. There is both art and science involved in getting consumers, especially newer ones, to try other products or to buy more expensive or higher margin products early on in their relationship with a company. Examples of strategies for doing this include offering free shipping on purchases of $100 or more, offering gift certificates when customers upgrade their products or typical buy-three-get-one-free enticements.
4. Excess or distressed inventory. Most companies have, at one point or another, found themselves with excess or distressed inventory. This may be a one-time result of poor planning or unexpected market conditions. Or it may occur in an ongoing manner in situations where the given company sells a perishable product or service. Similarly, a company may simply miss or overestimate the revenue opportunity associated with a given product. For example, a shoe store that ordered too many pairs of what it thought would be the next hot item may end up offering the shoes at a deep discount. Likewise, airlines may offer special weekend e-fares on seats or routes that have not sold out.
5. Purchase frequency. Some companies use discounting as a way to drive higher purchase frequency. This could be because the company is driven by a low margin, high frequency business model. It could also be because it has a product that lends itself to frequent usage (e.g., milk, orange juice, toothpaste or shoes). Or, in an online environment, the company might aim to drive consumers back to its website as often as possible, not just as means of generating sales, but for the additional page views that could translate into advertising revenue or additional customer data.
Okay, so we know a few of the common reasons why companies discount their products and services. But keep in mind that all consumers see a correlation between products and services and their prices. Perceived value is an important issue that all companies need to understand. In these challenging economic times, more companies are discounting than ever before -- some for the first time. But it's important to do your homework before launching an online discounting strategy. Here are a few questions that marketers need to ask themselves before slashing prices:
- How much does a consumer (not your CEO) think your product is worth?
- When will a consumer pay full price? When will they only buy on discount?
- What will temporary or ongoing discounting do to our brand?
- What are your short- and long-term goals of a given discounting strategy or promotion?
With that said, there are many examples of companies that are properly executing online discounting strategies. Here are three examples of companies whose promotional strategies are getting it right in terms of tone, voice and creative execution based on their brand promises, value and target audiences.
From its in-store experience to its website, Target does a nice job weaving its discounts and promotional strategy into the global brand positioning and experience the company is trying to create. To paraphrase, Target sells trusted, quality products at a fair price. As you can see in the screenshot below, the company uses real imagery and a clean look to surround the banner that advertises a 10 percent discount. Appealing and tasteful text includes phrases like "Real deals on refined rugs" and "Shop this room and get free shipping." Discounts and special offers are presented all the way down the page and extend onto the company's weekly ad page, where they proclaim, "These deals make our great prices even more refreshing." Such text serves as a good reminder that often the packaging and positioning is just as important as the price.
Omaha Steaks is a brand that first captured my attention about 10 years ago with its quality but affordable steaks. From there, the company maintained my interest with its targeted direct mail pieces, use of customer data to deliver personalized in-store experiences and its ability to offer relevant, timely specials that always left me wanting more. My personal experiences aside, what we can learn from Omaha has a lot to do with personalization, fulfilling brand promise and positioning -- and a lot less to do with discounting.
Again, this marketer crowns itself by saying, "When only the best will do... Omaha Steaks." The company sells the experience through appealing imagery and smartly written text. And oh, by the way, the company has great prices and if you act now, buy more or tell a friend, you'll save even more. Somehow, the company still leaves me feeling lucky every time I get eight free steak burgers with my order.
Here's a company and brand that has borrowed and attempted to deliver on one of the most basic emotions we all have experienced, or seek to experience: LUV (the company's stock symbol). Southwest has delivered on that promise to millions of consumers via more on-time flights, legendary customer service, a near flawless safety record and, of course, some of the best prices in the industry. Its website is a reflection of the company's values, as well as its emphasis on saving money: low fares, no hidden fees.
Now, many people maintain their loyalty to other airlines because of perceived superior service, more flexible schedules or guaranteed seats. But I would be remiss if I didn't mention Southwest in the context of this piece. Think about it: "Ding; you are now free to move about the country." "LUV is freedom from fees." "Wanna get away?" These are just a few ways Southwest combines its low prices and discounting strategy with bigger emotional hooks and its overall brand experience.
As a consumer, I expect to pay more during peak travel times, when I book my flight last minute or when I want a direct flight at a desirable time. However, I still get the same security, service and quality brand experience when I plan ahead and fly on a Southwest Saver Fare from Chicago to Nashville to visit my parents. Yet I'll then turn around and pay four times that fare to get closer to my parent's house by flying into Knoxville. Low fares, low prices and no fees are certainly part of the Southwest promise, but the brand continues to mean so much more. You are now free to form your own opinions.
As can be said of many things, just because you can discount your product or service doesn't mean you should. There is a time and a place for discounting, and it either works or it doesn't. Discounts can feel forced, desperate or over the top -- or they can feel like an integrated token of thanks that customers feel fortunate, rather than entitled, to receive.
Ultimately, brands and their marketers have a choice. You can discount your brand by discounting your products the wrong way, or you can constantly seek to build brand equity by delivering on your brand promise while discounting your products along the way. Good luck!