Marketing 101 #2: Discounts Destroy Brands

In Uncategorized by wakemanconsultingLeave a Comment

When I was in London last week, I had a drink with a friend of mine and over several gin and tonics, the topic came around to Black Friday, which I thought was only something stupid that Americans did.

Historically, Black Friday has been called that because retailers were supposedly losing money all year in the hopes that they would make all of their profits in the last 5 or 6 weeks of the year when holiday shopping took place.

Whether or not that is actually true or not, who knows.

But this idea of Black Friday has typically been an American thing.

About 6 or 7 years ago, the idea made the leap from the US to the UK and since the third Friday in November has become Black Friday in the United Kingdom as well.

The promise remaining made being that these are going to be new sales.

This promise is a lie.

You see, Black Friday is built on heavy discounting and in the origin story I received, was meant as a way for High Street retailers to compete with Amazon.

Here’s my rub, you don’t compete with Amazon on price.

Amazon can sell at incredibly low, or loss-leading prices, for one simple reason, they make tons of money off of Amazon Web Services. 

So to compete against Amazon, retailers need some sort of other arms that enable them to sell their products at a deep discount or loss.

Again, unless you are Amazon, do you really have that?

This isn’t really about Amazon though, but the huge myth that discounting is ever a good idea.

In retail, we’ve seen countless once great brands fall into decay due to their inability to wean themselves off of the discount drip once they’ve started taking the hit. The current most popular example for me is J. Crew.

Sure, consumers say that they love a discount, but almost all of us love cake and that doesn’t make it good for us.

The truth is that discounts are in almost every case a bad idea for a brand, especially in retail.

If your loyalty is only to a price, what have you really got on your hands? A commodity.

Most businesses can’t build a sustainable organization on a commodity, especially with the high overhead costs of retail.

The destruction at the heart of discounts is playing out in any industry you look at as well:

  • Books: why go to the corner store when I can order any book I want on Amazon and have it tomorrow for 40% less.
  • Tickets: why buy my tickets early when I can wait until the last minute? Because in 99% of the instances, the prices will drop.
  • Retail: why pay full price for that shirt at Charles Tyrwhitt because they will definitely have an introductory offer in the NY Times at some point?
  • Cars: you paid sticker? Geez!

I could go on and on.

The flip side of these things is indicative of the road forward.

When you go to a trusted retailer, the price is less important the experience is the thing. Take as an example, when I buy a book at Politics and Prose in DC. They are my neighborhood bookstore and sure I can get the book cheaper on Amazon, but I can’t walk to Amazon and I can’t impulse buy something that I have immediately from Amazon in my neighborhood.

Tickets, I bought tickets for Spurs v. Chelsea not based on price but based on the knowledge that I was only going to be in London for a few days and I had missed the Premier League on several visits to London. In tickets, more needs to be pointed to as a once in a lifetime opportunity.

Retail, when was the last time you bought an iPhone on a discount?

Cars, I just bought a Tesla. The price, take it or leave it.

This goes to show that discounts don’t have to be the only way to survive and in all likelihood aren’t about survival but slowing the inevitable death.

Those marketing geniuses that are telling you that you have to discount because everyone else is doing it or because it will give you a jolt are dolts.

Black Friday isn’t a panacea, it is a plague because it has trained people not to value what you are offering or selling, but to value your willingness to break your own neck to offer a customer a discount, and, likely, not even the kind of customer you really want to have.

But go ahead, discount away.

I’m sure it will be different this time.

 

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