In today’s episode, we want to take a look at discounting and sales and different price promotions. Predominantly in retail or B2C business to consumer. Whether in bricks and mortar, classic stores for shopping or online as well.

 

 

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TIME-STAMPED NOTES:

[00:00] Introduction

[2:27] Are discounting and price promotions starting to mislead customers?

[7:38] Why are business struggling to make discounting and price promotions profitable?

[13:29] Is “shrinkflation” better than discounting and price promotions?

[15:52] Why Businesses Need To Set Clear Goals For Discounting And Price Promotions

 

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Discounting And Price Promotions In B2C And Retail

 

Aidan: Hello and welcome to Pricing College with your host Aidan Campbell and 

 

Joanna: Joanna Wells. 

 

Aidan: In today’s episode, we want to take a look at discounting and sales and different price promotions. Predominantly in retail or B2C business to consumer. Whether in bricks and mortar, classic stores for shopping or online as well.

 

You know, anything really, where you’re trying to sell a product or service to customers. And you’ve got a sign-up saying, “Discount sale this weekend, sale this long weekend, 30% off,” et cetera. And just talk about, you know, why you might want to do that.

 

Some of the things to be aware of and also, you know, potentially are there other legal issues to this? What will the competition commission in Australia or other countries like the ACCC? and what do they have to say on the topic? 

 

Joanna: Yeah. Price promotions in b2c have been and are incredibly powerful levers to drive, firstly, new traffic to retail stores and online channels, but also as a way to test and trial new pricing approaches.

 

Over the years, retailers have known that the psychology behind discounting is something they really need to utilise to reach their targets. But also to connect with the end consumer and shopper alike.

 

When you see that big red sign, 25% off on some of your favourite goods in the brands that you love, that is enough to motivate you to go into the store and have a look around. And often you come out of the store not even buying anything on a sale. But buying what you actually want, which is not promoted.

 

And that’s something that retailers also know. I think in terms of the customer experience over the years, customers have become quite wary and educated, I suppose, about pricing and the use of price.

 

Promotions to attract their attention and potentially switch them from their existing brands and habits to new brands.

 

And there’s been a lot of, recently as we lead up to Christmas, retailers trying to really grab consumers online, consumers attention, potentially advertising their business over other businesses, utilising price, potentially a little too much to win the market share online.

 

And a lot of customers have, in a way, feel like rejected that and they feel in a way could be misleading. I think today we’ll just be talking about that in a little bit more detail. 

 

Aidan: I think there’s, I suppose we’re all experienced in both going to the shops and also seeing stuff in online. Like online, I think nearly every day you get a coupon code sent through. You know, if you’ve bought something online, you might get a coupon code 20% off, 30% off.

 

What is the rationale for these discounting and price promotions? You know, a) to reward existing customers, I suppose to encourage. You know the list that they have, clearly, you’ve already bought the product, you’re a warm lead.

 

Clearly, the cost of acquisition of getting that customers are lower, so giving a discount to get them back is a lot easier to share 20% off than to say, come back and buy more the same. So, I can completely understand why people are doing that. Other companies you’ll have, I suppose you’ll just have this promotion, you’ll often get on bank holiday weekends, maybe the stores are trying to promote to people.

 

Don’t go to the beach, and don’t go on a trip this weekend. Go shopping, maybe it’s just to promote a different leisure activity, to drive them to the stores and that could make sense. Other reasons I can think of potentially are you just want to get rid of old stock.

 

It could be a legitimate closing-down sale. It could be a fire sale of last season’s merchandise.

 

And again, that can make a lot of sense. And then also we have these, to some extent weird discounting and price promotions, like, to me, at least weird. I’m sure other people think not Black Friday, where, which I believe is the Friday after Thanks Giving, I think. 

 

In the United States, which has now taken off worldwide, where companies offer very large discounts to drive you into the shopping season before Christmas and New Year’s and stuff like that. So, those make a huge amount of sense. One other point I’d like to make is, some brick-and-mortar retailers, and the one I’m thinking of here is Myer in Australia.

 

It’s sort of, probably a middle-of-the-road department store, an old-style department store. And they often, nearly every weekend they’ll have big promotions, and so on. But numerous times I’ve selected an item from the shelf, and gone to the desk. Not knowing there was a discount, and when you get to the desk, they’re like, “Oh, there’s 20% off this.” And I’m like,” Well, that discount is preposterous. I was going to pay the full price.”

 

And it’s not achieving any marketing objectives. It’s not bringing extra people into the store. And it’s not even once I’m in the store, it’s not driving the purchase. So it’s almost the worst of both worlds.

 

So there is a lot to be careful about. You really gotta think of what is the promotion, and what are you hoping to achieve with it. Is it to meet quarterly targets the stockholders want? Those things have to be considered. Just dropping the price, again, is it going to last a goodwill dropping price actually bring in people or is it just a cheaper way of advertising?

 

Discounting and price promotions

 

Joanna: Often from what I’ve seen when people work out the financials of a price promotion, they’re very much looking at top-line revenue and they’re not looking at the full profitability of that promotion. In many ways, I think it is a sort of reaction to fulfilling sort of financial targets internally.

 

But really not thinking about the ramifications long term of those promotions. A few, I suppose a few years ago, we would see from promotions, one of the negative effects would be, especially in retail FMCG consumers would almost predict when the price promotion would occur on their favourite items and pantry loads so they would stockpile and just buy as much as they could of that product.

 

And just sit on it because they thought. All right, we know there’s a promotion. Usually, it’s at this price now it’s much cheaper. We’ll just buy lots of it. And that in a turn impacted the profitability of the firms and the supermarket from that stockpiling.

 

Cuz obviously the following weeks and days sales dropped massively.

 

Now, however, there’s sort of a new play as Aiden was discussing there. There are so many promotions being advertised both online and in-store. Everyone’s promoting all the time, so almost like it’s just lowered the average, price point really, retail price.

 

Cause people don’t really trust the recommended retail anymore because they know there are always promotions. So, in a sense, that is the new price and people know it, and they’re just going to wait until there’s a few days or a couple of weeks of their favourite item not being on promotion.

 

It’s all guaranteed that it’s gonna be on promotion soon. Another impact of price and promotion, especially in the supermarket we’ve seen, because it’s the pricing being bouncing up and down for so many years using promotional pricing that, supermarkets have introduced this everyday low price and literally forcing, firms, FMCG manufacturers, to put a lot of their keystone brands on this everyday low price program, are massively reducing their margins by doing so, and simply because of that sort of high low pricing that was implemented to drive sales.

 

High-low pricing is another word used in FMCG for that price promotion action by discounting. So, there are parameters being put in place to ensure that the price promotions are more effective.

 

Have I still believe that there’s much more work that can be done to connect promotions with the end consumer behaviour. Bending how they buy, when they buy and what they value. So there’s a spending behaviour and also key value drivers. I think this is still a very underexplored and undiscovered area.

 

And I say this because often price promotions are not targeted at the right categories or the right set of products at the right time. Simply the company doesn’t have that insight or data or knowledge on how to set prices based on a customer’s needs and to move quickly according to shifting changes in end consumer and shopper behaviour.

 

Hence, this is the new biggest area for profit lost, over and above that older school sort of dropping the price and then consumers pantry loading, which was the big thing before to that, that impacted profit more.

 

Now it’s a more subtle shift, so you, it really does require more agile price pricing to be able to capture these new and small, incremental, let’s say incremental, price gains, but highly profitable ones. And this in turn requires the right pricing team.

 

Often a lot of businesses still don’t have a pricing team to oversee prices and promotions, still largely dictated by sales and product managers. They also don’t have the right pricing system or an optimised commercial structure to embed the processes required to learn, to test, and trial, new price points or any capability programs to improve teams.

 

And this is including sales and revenue management teams’ capability in terms of how they can set prices based on consumer and end consumer behaviour and value drivers. 

 

 

Aidan: I think when you’re getting into this sort of consumer discounting, it really is data-heavy. I don’t think it’s the sort of thing you want to get into without knowing what you’re doing.

 

I think a lot of this stuff, I don’t think there are many new promotions out there. Most are related to a discount versus a prior price. A short-term price where you’re creating sort of impetus in the consumer. You know, a short time limit, potentially a two-for-one deal. Like those classics, to be honest, they’ve probably been around certainly since the beginning of the last century or midway through it.

 

There’s not much new under the sun, but the actual outcome, I’d be very interested to know the actual outcome financially, profit-wise, that these things have. Joanna also mentioned you know, are they cannibalising purchases just later in the season?

 

Some of the shops. You get used to seeing, are shops that just have permanent sales to the point where it becomes almost a joke. I used to live in England and there was a shirt retailer called TM Lewin. It permanently had sales, two-for-one deals. That seemed to be, I don’t think I ever saw it without a sale.

 

The classic, of course, is closing down sales and stores that never close.

 

And you know the Cogan issue where they promoted that they were going to have a, I believe it was a short-term discount. That, just for this weekend that in reality rolled on much, much longer. So, you know, I think it is, I can’t remember what that business guru, who said that if you don’t measure it, you can’t really improve stuff.

 

And I think when you’re doing these, you really need to measure it, testing constant analytics, and it’s a very data-heavy system and approach that is needed. The only other one I was gonna point out is JB HIFI in Australia.

 

There’s so many promotions on when you walk into the store, that to be honest. You never actually know what is being promoted to the point where it feels like nothing is being promoted. And the other one I thought I was in Coles. Which is a major supermarket here in Australia. And the new promotion is not a promotion.

 

The new discount is basically a sign saying price locked, which basically means prices stay the same. And that was being promoted as a discount. I suppose in real terms with this year of inflation, that is a discount. But I still thought it was a novel way to shout, “Prices Locked!”, I quite enjoyed that.

 

Joanna: ” Prices locked” comes from the EDLP program.

 

“Everyday low prices” where they lock best seller items, keystone items that customers love into this locked price or bandwidths of price to ensure consumers who obviously are feeling the pressure of rising interest rate. That they are doing their utmost to protect and to ensure that they’re thinking about the customer at this difficult time.

 

And that’s another sort of advertising and it does really help differentiate businesses. In terms of how they advertise their pricing for consumers. And some consumers value that, others are a bit warier about that.

 

In terms of new things, you said you haven’t seen anything new. One thing that did come to mind, when I was in the supermarket there and working with FMCG, there’s huge amounts of consumer research out there that says, people are very occupied and preoccupied with their health.

 

They want to see healthier brands.

 

Healthier options that help them with their diets, their new health regimes, you know, really help change their lifestyle, improve but also be convenient, you know, not difficult to open, easy to access, easier for guilt-free little treats that you can give to your kids without having to give them the whole big family pack and thinking, “Oh God, they’re just eating that whole bag of chips”, that sort of thing.

 

So, what I’m seeing is that research is filtering down finally into price and promotions, into the product innovation, into the types of products that we’re seeing. In particular in terms of, you know, that smaller type of package of the salty good snacks and cereals. A more creative packaging in that regard. But you mentioned it there. In terms of promoting that, companies use bundling as a way to do that.

 

The interesting new thing that I’ve seen is the bundling strategy applied to products that have been reduced in size, i.e. known as “Shrinkflation”.

 

And so people are buying more of much smaller items and paying a higher price for doing so and interestingly are not rejecting price the price rise because essentially it’s a huge price rise on a massively reduced amount of products. But psychologically, the customer still wants more of it. So they’re actually buying the same as they’ve always done but just paying much more for a smaller packaging essentially.

 

So I think that’s a very clever way. We’re seeing massive profitable price increases that have not been rejected through the smarter application of consumer insights and also value drivers.

 

And that really is all that esoteric stuff, what are value drivers, what is consumer spending?

 

 How we can we implement that in terms of price setting and product promotions? That’s a complete instance of that and it’s working. I think overall, avoid the sort of obvious things like the Persian rug carpet and closing down sale type of effect.

 

If you’re going to run a promotion, don’t just hike up the retail price, to then discount to provide an enormous discount, knowing that it’s not really a discount at all because people are onto it. If you’re increasing overall average prices in your list price, and then you’re promoting, just make sure that the timing of the promotion versus the list price optimisation is in line and it’s abiding by the ACCC rules.

 

And think about, the best way to build long-term profitability is honestly to generate value for the business, but for its customers too. That can be your B2B customers as well as the end consumers we’ve been discussing. And the shopper, if you can get that right, is the key to unlocking your pricing power both through price and promotions, price and promotion increasing overall average prices, or an overt price rise strategy. I suppose that’s my final.

 

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Bottomline: Discounting And Price Promotions

 

Aidan: I suppose my point really wraps up would be, you know, what are you trying to do with this discount? It’s like anything else in pricing. What is your objective? Have that clear,  you know, don’t just go out with a discount just for the sake of a marketing promotion that you haven’t thought through what the outcome will be.

 

So really dig into that first, and work out what you’re trying to do. And then, of course, you know, utilise those classics. You know, time restraints, which lead people to go out and do it this weekend, et cetera. Discounts versus other things whereby people think it’s a great deal and all that sort of stuff.

 

But bearing in mind that really the ACCC guidance in Australia basically does not mislead.

 

And it’s there to protect consumers and not really businesses but to protect consumers, from misleading stuff. So, just don’t be misleading. Don’t be permanently closing down. But yeah, take advantage of those psychological techniques.

 

Of course, Cialdini is probably one of the better ones on that influence. I think on the way to look into that and to really look at the techniques. Any marketing and salesperson will also know those things that lead to increased sales, but you know, is increasing sales. Is it just for volume?

 

Or is it to drive people to the stores? Is it to sell them peripheral ancillary products? You know, all those things you have to look at. And obviously, data, big data, metadata, those sort of things really are becoming more and more prerequisites. So, that’s it for me today. Have a great weekend.

 

Joanna: Yeah, have a good weekend. Bye.

 

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