Retail America Is Having a Big Sale -- but for How Long?

Deals, Dips, Discounts: Companies Risk Losing Customers Down the Road

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Al Ries
Al Ries
The day I received a Christmas card with a coupon from my automobile dealer, I knew the bubble was getting ready to burst.

Last year, 3 billion coupons were redeemed out of the hundreds of billions that were printed. But that's only the tip of the discount iceberg. Not only is Retail America awash in coupons, it's also awash in discounts, sales, doorbusters and loyalty programs.

Such esoteric ideas as strategies and slogans have all but disappeared in retail marketing as store after store across the country has focused its media guns on sales and more sales.

DOUBLE TAKE: Burger King goes the two-for-one route.
DOUBLE TAKE: Burger King goes the two-for-one route.

Consider Burger King's recent TV commercials. Two chicken sandwiches for the price of one. What's the strategy? To get people to switch from burgers to chicken sandwiches? Or perhaps to position Burger King as a two-for-one place like Little Caesars did decades ago? Instead of "Pizza. Pizza," perhaps we'll see "Chickie. Chickie."

Even many high-end stores are joining the rush to slash prices.

Lord & Taylor ... "60%-80% off. Save big all over the store."

Saks Fifth Avenue ... "50% off already reduced prices for a total of 65% to 70% off." Brooks Brothers ... "Savings up to 50% off regular retail prices."

And what newspaper or magazine sells subscriptions at their full prices? As The New York Times says, "Stay 100% informed, for 50% less."

In fact, 50% off seems to be the magic discount. Our local newspaper, The Atlanta Journal-Constitution, runs a weekly column under the heading "This week's big deals," the vast majority of which are 50% off or "buy one, get one free" in everything from soup to plastic surgery.

(Will Geico someday have to change its slogan to "15 minutes will save you 15% or more on car insurance"? Saving 15% is so yesterday.)

Like most marketing fads, the coupon craze is typical of the follow-the-leader thinking rampant in the marketing community -- if everybody is using coupons, then they must be an effective marketing tool.

And they are -- in the short term. It's easy for a company to check sales and redeemed coupons to decide if its couponing program is financially successful or not. But what happens in the long term? How many customers will a company lose tomorrow because they stocked up on sale products today?

The end of a bubble is often marked by a spectacular development and the coupon bubble reached a climax on Dec. 3, when news began to circulate that Groupon had rejected a $6 billion buyout bid from Google. A shade more than two years after its founding in November 2008, Groupon is worth in excess of $6 billion? Or maybe $15 billion, the figure quoted in a New York Times article about a planned Groupon initial public offering.

The Groupon concept is to give consumers the opportunity to buy coupons for something like 50% off regular prices. Then Groupon splits coupon sales 50-50 with local retailers. Sounds like a great deal for Groupon, a lesser deal for consumers and a road-to-ruin deal for local retailers.

But hope springs eternal, of course. Presumably, all those consumers who bought products and services for 50% off are going to be happy to return to their local retailers and return to buy those same products and services at full prices.

That's not going to happen. What is going to happen is that those same consumers are going to go back to Groupon and wait for the next 50%-off sale.

You see the same phenomenon happening across the retail spectrum. Macy's, Kohl's and most department stores seem to have ditched the idea of positioning their brands, instead relying on discounts, sales and coupons to keep consumers coming back into their stores.

Nobody is more sale-crazy than the folks at Jos. A. Bank. They're creative, too. Every week or so, the clothing chain gives its discount strategy a different twist. The latest Jos. A. Bank twist: "50% off entire site. 60% off any second item. 70% off any third item."

In marketing, the advantage is being different. When everyone else is running sales, it's hard to be different by running a sale. Today, a chain can be different by not running a sale. The biggest beneficiary of the coupon craze is Walmart, which seldom runs sales or issues its own coupons.

A recent Walmart ad compared the prices of featured products at leading national drugstore chains with its own prices. Walmart prices were "20% less, on average, than the leading national drugstore chains."

Someday, some leading consumer-packaged-goods brand will run an anti-coupon campaign that could shake up the industry. "No coupons. Never issued them. Never will."

Notice how effective Southwest Airlines has been with its "No change fees" and "No baggage fees" campaigns. As a matter of fact, Southwest has been successful by doing almost everything just the opposite of the strategies employed by the big carriers. No first-class service. No international flights. No food. No pets. No advance seating reservations. No inter-airline baggage exchange. No corporate discounts.

One of the secrets of Zappos' success is the absence of deals; it stands out as a paradigm of price stability. Consumers don't have to worry that someone will buy the same shoes next week for 50% off.

As America becomes more monolithic, I think you'll see the value of sales and coupons inevitably decline.

In the past, discount devices like coupons were effective in broadening a brand's customer base, especially if a company could keep them out of the hands of its regular users. With the advent of social media, that's getting more difficult do. The word about deals can spread rapidly.

Look at a website called Coupon Sherpa, a source for online coupons, grocery coupons, printable coupons, restaurant coupons and coupon codes to over 5,000 stores. Slogan: "Never pay full price again!"

Is that the future of retailing in America? Only time will tell.

Al Ries is chairman of Ries & Ries, an Atlanta-based marketing strategy firm he runs with his daughter and partner Laura.
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