With January kicking off another year of possibility, many brands start implementing their New Year strategy from as early as Boxing Day to jump on increased consumer interest. This time of year can be crucial to brands in terms of hitting targets as a foundation for the rest of the year. Campaigns tend to be front loaded, placing a lot of pressure on advertising. There’s also a huge amount of marketing noise in January, with many brands angling for attention from consumers.
Some brands will heavily upweight their spend to counter spend from competitors, while others will revamp their ads with creative messaging/design, aiming to cut through the noise. However, a lot of the time, January can devolve into a price war, with everyone trying to beat the cost of competitors.
While some discounting can be useful, it can be tempting to hammer home your best deals in a bid to win customers. Too many discounts can have an adverse effect on your business, not only for your bottom line, but also for the long-term success of the brand. It’s all about perception…
Your initial sales may be up, but while a customer may have chosen your brand over a competitor, what was this decision based on? Their choice may not reflect that you have the best proposition, or even if they like your brand, if it’s the most convenient, the best quality or has the widest range etc. Instead, the sale may only exist because you were the cheapest, and in doing so, the consumer is only seeing the cost, not the value!
Seeing a juicy uptick in sales, it may be tempting to continue discounting all year, however this can set a precedent and can damage the integrity of your brand. When considering marketing, price can be a very sensitive measure to adjust, therefore, discounting should only exist to drive specific campaigns. It should be used infrequently to support a specific narrative or event. Fundamentally, you want to avoid creating a pattern or cycle of discounting that consumers can take advantage of. Here’s some reasons why:
1: It devalues your offering
Whilst penetration pricing to launch a brand is usually a good way to engage customers, discounting too much, or too often over the lifecycle of your brand can leave consumers unwilling to ever pay more.
This is often called the Merlin effect or the Pizza Express effect. There’s an old adage that suggests an item is only worth as much as someone is willing to pay, so if your discounted price is often lower than your claimed value, the perceived value goes down.
Over the years it’s been widely reported that Pizza Express has struggled after its profits were offset by debt payments (to the tune of £1.1bn) and in 2020 it closed 74 restaurants, with a further 23 closed in 2021. As the future of the brand remains uncertain, it could be argued that Pizza Express has been the architect of its own downfall.
After exponential growth in the casual dining sector between 2010-2016, the mid-level, Italian-themed market became oversaturated. With consumer demand changing, brands in this sector had to either diversify or compete on price, quality or convenience. Pizza Express chose to offer a range of discounts, most notably BOGOF (Buy one, get one free) or 50% off mains.
Initially the brand enjoyed a positive swing in sales and by extension, a boost in awareness, (with a few brands even emulating the offer such as Orange Wednesdays). However, over time, this quality brand known for its skilled pizzaiolos, famous dough and fresh ingredients was reduced to a discount culture, undermining its value and damaging its brand.
Today, it is unlikely that consumers will choose to eat at Pizza Express based on anything other than the level of discount on offer. Subsequently, the brand is still struggling to re-establish its quality perception. Even Google shows that a) ‘Pizza Express voucher’, b) ‘Pizza Express deals’ and c) ‘Pizza Express offers’ are still in the top 6 search terms for the brand.
Ultimately, Pizza Express continues to struggle to appeal to and retain a loyal consumer base. Although is has tried to improve its image by enhancing stores and revamping menus, it has failed to compete with competitors such as Wagammama who regularly appeal to changing customer appetites, making cost-saving a marginal consideration.
2: It creates a level of expectation
The same learnings can be taken from Merlin who over use BOGOF deals during the summer with on-pack promotions. It essentially drives traffic, but ultimately ensures that customers will wait to use the offer as opposed to ever paying full price. It sets a precedent and creates discount driven peaks, and troughs for the business. When was the last time you considered paying £62 each to visit Alton Towers for example?
Once customers or indeed competitors learn of your discounting practices, consumers will always wait for the best deals before committing to purchase and competitors will adapt their marketing plans around your key promotions. Discounting sets a negative precedent that undermines your future opportunities to maximise margin. As such, being infrequent and strategic with discounting is a stronger strategy. Don’t let customers follow a pattern you create, instead, make them buy into your brand through carefully crafted messaging, promote your key USPs (unique sales proposition) and add tactical discounts to your overall strategy. If your product or offering is the main course, then special offers should be the seasoning, used sparingly to enhance the overall offering.
3: It shows a lack of confidence in your offering
Even if consumers don’t automatically value your offering at the level you’d like, when you discount continuously, it shows that you don’t believe your value proposition either. It’s all about the perception of value and this can erode credibility and trust in your brand. Prospects sense this lack of confidence and question whether your proposition is really as good as they thought if you’re willing to cut costs. Modern consumers are very marketing savvy, so it can also be perceived as desperate and make consumers wonder about the state of your business if you’re constantly throwing offers at them.
One the one hand, occasional discounting can generate hype, excitement and a flurry of sales, but if the discounting becomes commonplace, it can have a wallpaper effect, with consumers becoming bored and switched off from your advertising.
4: It reduces your profit margin unnecessarily
What’s better, selling 100 products at £100 or selling 200 products at £50? The revenue is the same, but if used as a one off, you could reach a larger audience and extend your reach for future campaigns, ultimately improving your bottom line. However, if you price your product at £100, but rarely sell it for more than £50, your margins will be much lower overall. Furthermore, the profit margin you lose through frequent discounting will need to be recouped, causing you to exert more sales effort and to seek sales at higher prices (which consumers will ignore due to perceived value) to compensate.
To maintain necessary margins, it may be tempting to find ways to lower your costs, either by reducing material costs or reducing service or quality. This can impact your brand integrity again, crossing a critical line where your perceived value takes yet another hit.
Ultimately, discounting has its place within marketing strategy to supplement key periods or to drive traffic during quieter periods, but it’s important for brands not to lose sight of their proposition and their journey. Instead, when you’re looking to meet hard targets, I advocate emphasising the value, not the cost.
Believe in your brand. If you need to create something more engaging, can you highlight the key benefits/USPs that make you stand out from the crowd? Do you offer the best quality, the quickest delivery, the widest range? Do you have the most credible brand on Google or do you have loyal customers that readily repeat business? These are all important things to shout about! If you need to add extra value, occasionally you can you provide a free product (that could also help launch/drive sales of another range), provide access to a new service within your offering, or even tactically work with partners to offer complimentary products or services.
This allows you to be confident in presenting your value proposition, whilst engaging prospects with something to further enhance their experience. So always choose raising the value over lowering the price.