Caught In a Discount Spiral? Here’s How To Break Free
Picture business in a post-pandemic world. Likely you’ll see visions of ads for discount sales everywhere you look – “20% off everything!” “Half price for a limited time!” Beneath the cheerful signs, the reality is many brands are desperate for ideas to increase sales. Globally, consumer spending is down across most sectors – not only thanks to widespread lockdowns interrupting purchasing behaviour, but also rising unemployment prompting more cautious consumption.
Perhaps due to misplaced optimism about how long the pandemic will last – after all, last March who’d have thought we’d still be here today? – many brands have taken a short-term approach to marketing promotions. Sales. Discounts. Strategies you know will increase sales and revenue quickly, so you’re willing to overlook a temporary dent in profit margins.
But (at the risk of sounding cliché), we must all face the fact: this is our new normal. Even with vaccinations rolling out, the economic ramifications of Coronavirus are likely to be huge and long-lasting. Lower consumer spending is expected to prevail in the long-term, and some industries may take years to recover.
Using discounts is a bit like pouring away half your water while stranded in a desert to make your backpack lighter – you might feel some benefit straight off, but further down the line you’re bound to regret your panic-driven decision.
If you want to ensure your brand comes out the ‘other side’, short-term strategies won’t cut it. There are plenty of reasons discounts are unsustainable. Not only do they squeeze profit margins, undermine differentiation leadership, and ultimately reduce product value. They also punish brand loyalty and create the wrong visibility, eroding consumer trust and creating negative associations. As a survival technique, it’s a bit like pouring away half your water while stranded in a desert to make your backpack lighter – you might feel some benefit straight off, but further down the line you’re bound to regret your panic-driven decision.
So, how can your brand survive the pandemic without discounts? If discounts are the norm for your brand or industry, you could be caught in a downward spiral – each deal you or your competitors offer necessitates a greater slash next time, driving prices down (and profits too). We know breaking the cycle is tough, so we’re sharing marketing ideas to increase sales and breaking out of the discount spiral from the experts at RIX:
1. Refine your marketing message
As a marketer, you know the value of a strong marketing message. But is yours as tight as it can be? Don’t leave consumers guessing: tell them exactly how your product or service solves their problem. What’s more, make sure you’re in the know with what those problems actually are in these rapidly changing times.
When it comes to surviving the pandemic, “For some [brands], rebuilding their customer experience by appealing to changing values could result in a profitable, and perhaps much-needed revival,” says Katie Jones, writer for Visual Capitalist.
By proving you truly understand their pain points (and care enough to help ease them), you encourage loyalty, positive associations and awareness. This focus on differentiation prompts consumers to consider foremost the value of your product or service, as opposed to merely the price, leaving your brand less vulnerable to comparison and discount-sparring with competitors.
2. Give more instead of charging less
Think about it: a 50% increase in quantity is equivalent to a 33% discount. But it sounds way better, right? Consumers think so, too – most will opt for getting more, rather than paying less. One study showed a 73% increase in the sale of lotion in a value pack offering a higher quantity for the usual price, as opposed to the usual quantity at a reduced price.
Giving more instead of charging less has other benefits, too. You appear generous – and thus form positive brand associations – by offering added value (rather than bringing into question the original value of your product or service). Plus, by nurturing satisfied customers you grow brand loyalty and increase the chances of word-of-mouth marketing.
3. Offer free shipping
In a similar vein, free shipping (i.e. giving something more) is also catnip for consumers – making them four-to-five times more likely to make a purchase. Studies show people are more likely to buy something priced at $5 that includes free shipping, and more likely to pass up the same item priced at $2.50 with a $2.50 shipping fee. Logical? No. Useful? You bet.
4. Utilise the ‘power of free’
In fact, consumers would rather get something for free and make a smaller saving, than pay for something and make a bigger saving. This preference could be down to loss aversion: a free item carries no risk. Another explanation is simply that a free item is low-hanging fruit – something obtainable with almost no effort.
Either way, offering something extra with your product or service at no additional cost is an easy way to employ the power of free in your marketing, while protecting profits against more substantial (yet apparently less attractive) discounts. Plus, you’ll benefit from the positive associations the free item brings with it thanks to the halo effect.
THE ‘POWER OF FREE’ IN ACTION: A CHOCOLATE EXPERIMENT
Using two types of chocolate – a usually inexpensive Hershey’s Kiss and a more premium Lindt truffle – behavioral economist Dan Ariely first offered the truffle for 15 cents (half price) and the Kiss for 1 cent. More people chose the truffle. But when he reduced each price by a cent to make the truffle 14 cents and the Kiss free, more people chose the Kiss – despite the fact the price differential was the same.
5. Bundle your products with experiences
In today’s experience economy, where 76% of consumers would rather spend their money on experiences than material things, experiences are the ultimate purchase incentive. If you’re thinking of offering something extra for free, bundling your product or service with an experience is the ideal way to piggyback on this consumer trend.
Sure, it might seem tricky to arrange experiences at a time like this, when many people are confined largely to their home. But, to our first point, it’s all about discovering the experiences people are craving right now – whether that be a trip to look forward to, or an at-home activity to break up the monotony of life in lockdown.
EXPERIENCE REWARDS IN ACTION: DE’LONGHI OFFERS FREE FLIGHTS
De’Longhi came to RIX looking for unique sales promotion ideas to increase sales and market share, awareness and improve POS placements for their premium coffee makers in the Russian market. Their budget was 10% of the product value, which they would usually use to grant a 10% discount on their coffee makers (priced at between $400-1,000).
Instead, we offered customers a free flight to one of 38 destinations across Europe and Asia – at an average cost of $48 per flight. The perceived value of such an offer starts at $200, making it far more desirable than the equivalent discount off the product.
The promotion led to an 82% increase in sales, along with a 26% increase in market share. Plus, since RIX took responsibility for redemptions beyond expectations, De’Longhi were safe in the knowledge they had full budget-safety throughout.
Wondering how you can make experience rewards work for your brand? Check out five things you need to know to run a successful reward-based sales promotion, and get in touch to find out more.
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