How to Avoid Damaging Your Brand with Discounts

This past holiday season we saw what I consider to be a highly reactionary response to the current market correction we’re undergoing.  For the first time in my recollection Luxury brands were not immune to this volatile mindset, but at what cost to their long term brand equity?  I have several friends of mine that work at the local Movado Boutique, and I was amazed at the level of discounting that was being offered.  What didn’t surprise me at all were the consumer reactions once the season ended.

I’ll share with you a story that my friends shared with me.  Names have been withheld to protect the innocent.  A client of the boutique had purchased three of the exact same watch at the deeply discounted price over the holidays.  Several weeks after the sale had ended the client came back to the boutique to purchase a fourth watch of the exact same style.  I must qualify this by saying that the watch style in question was not a clearance item or discontinued style.  It was indeed an active SKU in Movado’s line.

Needless to say the client was not willing to pay full price for the fourth watch after being predisposed to the substantially lower price point.  The value had been diminished by the excessive discount, regardless of what legal disclaimers you use.  The Boutique management made every appeal on the client’s behalf to corporate management to no avail.  The client would have to pay full price for the exact same item they purchased at less than half the price weeks earlier.

Now I’m not advocating that you abandon discounting all together.  I’m just suggesting that you have clearly defined policies in place, and that you don’t abandon them at the first sign of trouble.  Discounting is an excellent way to liquidate dead inventory, and when done in moderation can draw in new business.

If you are simply looking to increase sales however look into customer loyalty, gift with purchase or a buy-one-get-one (BOGO) type programs.  These style programs add value to the consumer experience as opposed to diminishing the value of the brand.  That and there is a cost of entry.  The consumer receives a reward only after performing the desired action of making a purchase. 

From a shear ROI perspective these programs make more sense.  Why sell a $100 blouse for $50 and cut your margins when you can include a unique accessory with a retail value of $50 instead.  We both know that your acquisition cost of the accessory is well below the $50 retail value, so you save money and have added value.  Regardless of the outcome of the promotion the accessory will pay for itself.  This will be accomplished by either increased blouse sales, or the future retailing of the accessory if you don’t use them all.