by Aurangzeb Agha
When we entered the recession in 2008, retailers began to overly rely on large discounts to bring wary consumers into their stores. But as consumer confidence continues to rise, brands and retailers find themselves stuck trying to find a way out of the promotional holes they’ve dug, placating a clientele who continuously expects steep discounts. These constant promotions are hurting retailers overall profitability.
Constant discounts are hurting brands twofold: first, by cheapening their image, and second, by sacrificing huge amounts of revenue.
Brand Image Issues
In a recent article by Business Insider’s Mary Hanbury, she writes about how companies such as Ralph Lauren and Michael Kors are scaling back on discounts after years of declining revenue and brand image.
Michael Kors CEO, John Idol spoke to investors about promotions in 2016 and said, “Gross margins (are) declining because we’re really trying to meet certain pricing that’s happening to be competitive. And we don’t think that’s the right thing to do for our brand going forward.”
In a race to the bottom on pricing, the Michael Kors brand was moving towards a bargain bin image instead of being the high-end brand they wanted to portray. Jump forward a year from Idol’s comments to 2017, and Idol had reduced the number of promotional days by 40%. Michael Kors reaped the fruits of that strategic shift with higher average prices in women’s wholesale accessories, footwear, and ready-to-wear clothing categories.
Another CEO focused on the damage caused by excessive promotions is Patrice Louvet at Ralph Lauren. During an earnings call in 2017, Louvet spoke about the harm of persistent discounting and how customers want to purchase “exciting” apparel. “Exciting isn’t selling a generic product with more and more discounting.”
All discounts and promotions aren’t bad for a brand. However, constantly pushing generic promotions to a broad audience can— over time— cheapen a brand’s image. Instead, companies need to leverage new technologies that focus on providing more intelligent, targeted promotions directed at shoppers that are at the highest risk of not converting.
Our company, Metrical, is built around this concept. By incorporating artificial intelligence (AI) that identifies when and where a shopper is about leave your site, Metrical is able to provide targeted offers to convert only at-risk shoppers, converting them into buyers. An intelligent approach to discounts—more sophisticated than general discounts offered to everyone visiting your site— can help retailers avoid the image pitfalls of mass promotions while also allowing them to hold on to revenue from shoppers willing to pay full price.
Discounts and Promotions Leave Money on the Table
In this Washington Post article, Sarah Halzack writes about the hardships retailers face to get their clientele out of the cycle of expecting constant promotions.
Speaking to investors, CEO of Justice, Brian Lynch, talked about how easy it is to fall prey to big promotional events. “The first time you do it, it works. You look like a hero,” he said, but eventually, it “doesn’t quite work the same.” Lynch begs the question: How do you maintain the urgency to purchase when customers know that you will have another sale just around the corner?
The constant use of promotions hurts retailers overall profitability. While using promotional events can help draw in new customers, the repeated use of such tactics loses efficacy over time while lowering consumers’ perceived value of your brand and resulting in decreased revenues. Taking advantage of more intelligent solutions, like Metrical’s Cart Abandonment Reduction Technology (CART™), allows retailers the opportunity to selectively convert new clients with offers only when necessary, without creating a coupon-dependent clientele.