"Dumb discounting" can injure UK's retailers image

Heavy price slashing and discounting can damage a brands or retailers image, warns The Institute of Promotional Marketing (IPM) after studying its 2013 data which revealed brands invested significant amounts on promotional marketing. According to new research released by the IPM,

UK retailers spent nearly 55 billion pounds on promotional marketing during 2013. 40.4 billion pounds was spent on price discounts, while the remaining amount was spent on 'value-added' promotions, which involved offering consumers a incentive or reward instead of a discount or price cut.

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Godwin, head of insight at the IPM commented: “The big question for brands and retailers has to be how best to strike a balance between price discounting and promotions that adds value for everyone – brands, retailers and consumers.”

Long-term price cutting can negatively affect brand value

However, if British retailers and brands rely too much on attracting consumers with price discounting, although it may push short-term sales, it will also damage the long-term brand image and values, suggests the IPM research.

“The economic downturn has inevitably meant that bargain hunting has become ingrained among Britons, with more than half buying brands only when on price promotion. Discounting has been seen as a cheap and dirty way of getting volume out of the door of the factory and the retailer,” says Godwin.

“But the result is that promotional activity has changed from being a means to generate interest in brands to something that actively discourages brand purchase, unless there’s a deal,” adds Godwin, which has encouraged consumers to become deal or bargain hunters, who are becoming more and more resistant to discounting tactics.

The over-use of any promotional or discounting technique will ultimately reduce its effectiveness, as there are emerging signs of a kickback coming from consumers who are becoming more and more disillusioned when they purchase goods based on price alone. “Increasing numbers of shoppers are looking for added value – they are becoming immune to discounting. After all, when everything is discounted, then nothing is.”

Gideon Lask, CEO and founder of Buyapowa, social commerce business, agrees with the research findings from IPM and adds that UK retailers are still “far too reliant on heavy discounting strategies, despite mounting evidence they don't achieve long-term results.”

He believes that in the past, “decent” discounting “paid for itself in exposure” but today with so much of it going on, “any real cut-through now requires margin-obliterating cuts of 80 percent of more. Even then, it’ll simply attract deal-hunters with no loyalty to your brand and no incentive to shop with you again. Unless you’ve got money to burn, discounting is dumb,” adds Lask. The IPM intends on using its recent findings, along with previous research, to encourage retailers and brand owners to rethink the their current balance between price promotions and value-added promotions.

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