Kineo Australia

Marketing in a downturn. Or cutting the price without ‘discounting’.

When times are tight, the focus of purchase decision making – for the average Joe – seems to be increasingly about price.

Count the number of  ‘Sale’, ‘Discount’ and ‘Special offer’ signs on your local retail ‘high street’ and you will know what I mean. Everybody wants a bargain and very few consumers seem to be in the mood to pay full price for anything.

Gerry Harvey, the unofficial barometer of Australian retail sentiment, is constantly being quoted as saying that retail margins have been under pressure.. or more simplistically, “we aren’t making money on what we are selling”.

This discounting scenario is not just specific to retail, the model of ‘price sensitivity’ applies to equally to service providers.

So of late, business seem to have no choice but to ‘blanket’ cut the price to make the sale. Is this really the only option?

What then can marketers do about this issue and where does the Internet sit in terms of its role/value?

Lets look at the obvious (and not-so-obvious) problems with discounting:

• Margins. Very obviously – profitability is reduced.
• Blanket discounting is inefficient – ‘one discount’ means that everyone gets the same level of price reduction. It might well be that not everyone who buys is price sensitive, therefore the discount might be unecesarry for some. (50% of my discounting is wasted – the problem is I do not know which 50%!)
• Distribution conflict.  For wholesalers and manufacturers, suppliers or franchisers of the brand might not want to discount or have different views on depth or timing of discount. This applies to both product and service provider models. This is a tricky problem to have.
• Brand damage. Brand can be potentially compromised. Particularly for Luxury or exclusive brands who don’t want to be seen as ‘cheap’ or ‘discount’. There is often a perception of ‘once a discounter always a discounter’ when brands drop prices temporarily.
• Deflationary expectations. When consumers perceive prices are coming down – often they will wait for prices to come down even more, which compounds the pressure on margin. A vicious cycle.

So in times of a downturn, why is the Internet is a marketers best friend? Here’s why.

The Web traffic tap.  Online marketers are in the enviable position of being able to turn on and turn off various web traffic sources at will. In other words, web marketers can often increase potential customers rapidly. Granted, there is often a cost and a limit on the quality and quantity of traffic – but mediums such as Email marketing, SEM, Ad Networks and Affiliate channels give the marketer the ability to add significant traffic numbers with a reasonable degree of confidence and control.
Traditional service and goods providers are largely bound by physical location and foot traffic as well as lead times on advertising such as traditional print, radio and screen.

Clearly this level of control over volume gives the web the edge.

Pricing discrimination. Everybody has a price.

Online marketers have a lot more control over how much they charge for the same service or product to different consumers. The ability to target a consumer on the basis of membership, location, referring channel, customer-value, etc, is particularly suited to digital platforms.

The web arguably gives a brand the ability to target each user with different pricing and/or discount strategies without having to be visibly offering all consumers the same ‘blanket’ discount. The classic example for this model is email marketing whereby each potential customer could poentially be offered a completely different price for exactly the same product or service.

Additionally there are scenarios whereby customers who abandon a sale during the checkout process – can be emailed an incentive, discount or offer in order to return to the site and finalise the transaction. In a market where everybody wants ’something extra’ this model of 1-to-1 pricing and retargeting cannot be undervalued.

Targeting, targeting,  targeting. Did we mention targeting?

In a world where consumers have become so protective of their hard-earned dollars, there is no place for inefficient marketing. Is there a better medium than the web for controlling the relevancy and segmentation of accurate, timely, suitable promotions on a true 1-to-1 individual basis? (hint: the answer is no).

Marketing in a bubble. Or Marketing Behind close doors

The web is seeing the meteoric rise of private shopping networks. These operate on an invite-only membership basis. Particularly in Europe.

Think of this as ‘discount Outlet shopping’ but you need to be a member to get through the front door.

One only has to observe the example of Vente Privée – a  European discount ecommerce retailer – to understand the meteoric growth component.

Vente Privée’s figures from 2007 show that last year during its best times they shipped up to 900,000 orders per month (about 30,000 per day).  The French online shopping club has a 2008 revenue target of 500 M Euros (350 M Euros in 2007).

Vente Privée and private shopping networks operate on the basis that full price (typically higher end) retail brands have excess inventory, and will continue to do so with the downturn. Very often these brands do not wish to discount publicly as to not damage their brand – so the ‘closed doors’, selective shopping principle lends itself perfectly to moving excess/distressed product.

Clearly, the web lends itself perfectly to selling goods behind closed doors at various levels of discount. The same concept could be applied to service providers.

Summary

Online has effectively given the marketer the ability to discreetly and efficiently market a service or product via a model that suits the unique selective discounting and targeting needs of both the business and price sensitivity of each customer (or potential customer).
This model of selective discounting and targeting would be a very difficult (and possiby expensive) model to emulate in the traditional marketing world.

The online marketer has a much more sophisticated, informed and agile means to control the marketing mix of Product, Price, Promotion and timing principles. It is this level of control and the true 1-to-1 marketing capabilities of online that lend itself to marketing in a downturn.

Brands must refocus their marketing spend wisely and embrace online. One thing is for sure, marketing in the current economic climate is about efficiency and selective targeting. The web lends itself perfectly to this need.

Jon Bovard