Recession inspired discounting has supercharged the bargain expectations of consumers – and also decreased the ability to decipher the intrinsic value of merchandise.
Discounts infer that the original price of any item is based on the attribution of perceivable value which marketers, consultants and retailers will capitalize to infuse with messages directed to arouse loss-aversion and therefore activate its demand in a shorter time cycle elevating sell through and inventory turn (at a healthier end margin).
Based on psychological principles, customer (active or potential) will focus on what they are “saving” by buying at a discount, instead of tallying what the total expense will add up to. This will lead to an increase in conspicuous consumption (yes…it is true – believe it or not, we buy things we don’t actually need. A lot.) E-Comm business knows this well, and has made a business model not by connecting you to more alternatives, but by making you conscious of the amount of this you could be missing out on. This is the Discount Oriented Strategy (DOS).
See if this sounds familiar: You browse for hours, (we wont say which hours as to not compromise your time usage during office hours), you pin, select, or save for later in tabs and shopping carts. On any particular elevator, subway or taxi ride you will go back to it, and re-select and review your previous indulgences. You may have buyer’s remorse, or you may trigger the purchase granting you instant satisfaction! (As you have just made a very carefully studied decision to buy that 10 pack black tank top you so desperately needed for $4.99). Now that you have it, it is not worth anything in today's over sharing economy until you have posted it on a socio-digital platform as the pleasure is caused by the motivation of having, not of actually purchasing the item.
Great product promoters and facilitator like Amazon have had to reinvent the wheel they previously invented and are now skewing away from sole promotional orientation to acquire consumers. Maybe a 52 collection a year system is still far from catching on for them, but they have now launched their own brand, so it shows where the margin actually is, and with their information and consumer behavior algorithms, it is a matter of time before your unconscious is completely nullified and reacting to their amazingly precise product offering.
What they have built, going back to the psychological aspect of the business, is a loyalty community, second to none (not even apple). Incremental revenue on subscription based services aim to drive immediacy and first-take on novelties and the utmost human unconscious desires. So in contrast, not only are they not promoting by price slaughter, but they have increased the perceived value due to its commitment to unequivocal service.
Although not everyone is banking on the e-comm and omnichannel model… they should. Speedier response, direct connection and consumer insight, and front-end information are catalysts for future success. By doing this, initial margins can drop, and tighter inventory levels can be managed, with a shorter cyclical time frame.
As luxury or prime competitors shift to smaller retail spaces, specialty markets, pop-ups, collaboration outlets and overstock models, those who have historically built their businesses on low prices and low initial margins will have to adapt to a new strategy to compete, as they will not have the luxury to showcase a premium brand at a rock bottom price – hence the inevitable transformation of the current retail scenario.
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Dr. Stephen C. Patton is a PhD based out of Shanghai with 20+ years experience in the retail, sourcing and brand management.
For additional insight, feel free to contact or follow me on twitter & instagram @stvpatton or contact us on our facebook page: www.facebook.com/RetailNeuronomics.
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