The Sports Authority had "6-hour doorbusters," with 25% off its entire stock. Toys "R" Us offered "Lowest prices ever" with 50% off and more. Sears featured "Insanely early Friday Specials." The first 200 customers in each store got a free $10 reward card.
The advertising orgy was Thursday. In Atlanta, for example, the local newspaper (The Atlanta Journal-Constitution) carried 385 display ads (not including house ads) in addition to 40 inserts with 358 pages of advertising. America's retailers paid handsomely for the privilege of offering consumers these deep discounts.
Perceptions of high prices
Newton's third law states: "For every action, these is an equal and opposite reaction." What is the opposite reaction when a chain offers to sell its wares at deep discounts? Unfortunately for retailers, the opposite reaction, as far as consumers are concerned, is that "your regular prices are too high."
Is that what most retailers want to communicate? I think not. Most retailers want to communicate the fact that their retail outlets feature great merchandise at reasonable prices. Or as Macy's used to say: "It's smart to be thrifty."
Coupons, sales, special discounts for customers using membership cards and a host of price promotions have steadily undermined the idea that any particular chain is a good place to shop -- unless there is a sale.
Store sales are like crack cocaine. You get a short-term high followed by a long-term low. The only way to get high again is to have another sale.
The Circuit City customer who bought a 32-inch HD LCD TV set for $499.99 on Friday isn't going to buy another one on Monday at the full price of $899.99. Furthermore, he or she is going to be leery of buying any major appliance at Circuit City unless there's a sale going on.
Like the airlines' discount derby
Where is the discount derby headed? If history is any guide, it's headed in the same direction as the airline industry. It was the airline industry that perfected the high-low approach to marketing. High prices for consumers who have no other choice. Low prices for consumers who could find cheap fares on other airlines.
What happened in the airline industry can also happen in retail generally. As the Syms slogan says, "An educated consumer is our best customer." As consumers get educated about retailers' high-low strategies, they tend to move to chains that feature "everyday low prices."
In the airline industry, it was the "no-frills" airlines with their everyday low prices that undermined the high-low strategies of the major carriers. Last year every major airline (American, United, Delta, Northwest and U.S. Airways) lost prodigious amounts of money while Southwest made $548 million in net profit.
As a matter of fact, last year Southwest's 7.2% net profit margin was higher than the 6.7% net profit margin of the average Fortune 500 company and last year was a great year for a Fortune 500 company.
What's tragic about the retail industry's "sale" mentality is the almost complete absence of branding in their advertising efforts. I leafed through the 358 pages of insert advertising in the Thanksgiving issue of The Atlanta Journal-Constitution and it was hard to find any mention of what any individual store stood for. Nothing but sale, sale, sale.
Many chains today do almost no advertising except sale advertising. The furniture industry is famous for its "all-sale, all-the-time" advertising. Another heavy advertiser that does nothing but sale advertising is Jos. A. Bank. Its website sets the pattern:
- "Entire stock of top coats. 60% off."
- "All pinpoint dress shirts. Now $29. Reg. $59.50."
- "Entire stock of pattern sport coats. 60% off."
Strong brands, little advertising
Strong brands do little sale advertising. I have never seen a Starbucks' ad offering two cappuccinos for the price of one. Nor have I seen an Apple ad offering half off on an iPod. Or have I seen a Rolex ad offering two watches for the price of one.
On Thanksgiving Day when all the other retailers were running their sale, sale, sale advertisements, Whole Foods ran an ad in the Atlanta newspaper with the headline: "Today we give thanks to all our local growers."
That's class. And that's a powerful brand.
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Al Ries is the author or co-author of 11 books on marketing, including his latest, The Origin of Brands. He and his daughter Laura run the Atlanta-based marketing strategy firm Ries & Ries. Their website is Ries.com.