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OPINION4 September 2012

Will short term discounting harm brands?

Heavy vouchering and discounting have helped end 18 months of declining volumes for retailers while promotional activity has remained unchanged at 35% of FMCG sales, following continual use of money-off vouchers and coupons. But what are the implications for brands in being discounted?

Heavy vouchering and discounting have helped end 18 months of declining volumes for retailers while promotional activity has remained unchanged at 35% of FMCG sales, following continual use of money-off vouchers and coupons.

Although this is primarily a retailer-driven initiative, what are the implications for brands in being discounted? How can brands maintain perceptions of quality if they are being discounted? Is this the thin end of the wedge where the only way to sell is to be discounted?

Each of us, of course, have brands that we are likely to buy no matter what; discount or no discount, those products will continue to find their way into our baskets. But those brands are probably in the minority. We are in an economic phase where brands need a compelling proposition in order to remain at a premium within their category. But while discounting may persuade consumers to try something new, it is unlikely to lead to sustainable business unless the products offer a better experience than their competitors. The challenge for brands is to retain those consumers without retaining the price reductions. 

Discounting, of course, doesn’t need to be quite so overt. There are ‘brands’ that discount more discretely but equally successfully. The secret hotels on lastminute.com, ‘shopping clubs’ or Groupon style offers can help bridge the gap between increasing sales and occupancy while avoiding brand equity erosion that accompanies continual overt promotion.

This works online too, with sites offering large discounts on higher-end fashion brands. To many, this makes premium brands more accessible without feeling like they are compromising on quality. While it doesn’t necessarily impact on how they feel about the brand, it may elevate how they feel about themselves. This can rub off on the brand by association.

There is also a more pragmatic view of discounting to consider. A brand being constantly discounted might lose its premium positioning, however it might (in the current climate) be balanced by a consumer’s delight at bagging themselves a bargain. In fact, not being discounted could be perceived as brand arrogance, as if you are out of touch with the problems of your audience. For FMCG brands, premium often equals a touch of affordable luxury – a small treat to brighten your day – so frankly the danger of undermining your quality perception through careful promotion is probably quite low. What might be an issue is who the discount is attributed to – as a brand you will be paying for the promotion, but the retailer will probably get the accolades and be seen as the shopper’s friend. So it might be important to communicate to consumers that the brand is responsible for the promotion rather than the retailer. 

Brands should perhaps take note from politics – it is important to demonstrate to people how you share their pain, rather than telling them we are all in this together and retreating to your ivory tower of price premium.

@RESEARCH LIVE

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