It may be easy to dismiss this trend as a gimmick that will quickly become wallpaper to accompany the back-to-school/end-of-summer/Labor Day clearance clutter. After all, now that GM has twice extended an offer that's spanned an entire summer of TV, radio and newspaper ads, it's no longer new and catchy, and consumers are ready for the next big bang.
It follows, then, that smaller retailers of electronics, furniture and sporting goods just now jumping on the employee-discount bandwagon are riding a trend on its way out, right? No so fast. These regional stores have at least one component that could keep this pricing scheme working for them year after year while the returns die off for GM: their locality.
Marketing experts said that because small businesses are part of the local community, consumers are more likely to believe that they are being offered deals as valued "family" members worthy of an insider discount. A similar offer made by a faceless corporation like GM (local dealerships excepted) is viewed with more skepticism.
To begin with, a long-term discount can lend itself to brand deterioration. "Discounting is what customers want, but it cheapens the brand," said Philip Kotler, professor of international marketing at the Kellogg School of Management. "After a while they begin to wonder why [the retailers] are giving products away. A promotion won't work if people don't feel good about the product. Companies need to be more concerned about building a reliable brand and less concerned about giving it away."
"Giving it away" seems like the very nature of an employee-pricing sale. The common perception by consumers is that the employee discount is the deepest discount a store could possibly give. While other sales with similar discount percentages are shuffling last season's items out the door to make room for newer products, the employee discount carries with it an air of "just because we like you."
In the 1990s when Dean Marcarelli, now senior VP-marketing for Levitz Furniture, worked with a regional electronics retailer, it hosted a very quiet "friends and family" weekend event, offering a special discount for only the nearest and dearest of their employees. It was so well received that the next year it broadened the invitees to a mailing list of select customers.
So when Levitz held its first-ever employee price weekend last week in all its 115 stores concentrated in the Los Angeles, San Francisco and New York metropolitan areas, it kept very much the same selective, hush-hush attitude: a few full-page ads in local newspapers the day before the weekend sale and some coverage by local TV stations throughout the sale period. Levitz never even announced what the discount percentage was-it simply gave cards citing the percentages to customers as they walked in. The result was a 30% increase in sales over the same weekend last year.
Right amount of time
Razor-thin margins may prevent a store like Levitz from offering the deal all summer long, but that is to its benefit. "You offer any sort of deal too many times or for too long and people will get sick of it. It stops feeling special," said Mr. Marcarelli. Still, he predicts that Levitz could probably host the event four times a year and enjoy a jump in sales each time.
Sandy Howard, co-owner with her father of Buck's Furniture in Wolcott, Vermont, won't deny that she was inspired by GM's offer when it came to Buck's employee-discount sale. "I heard it generated cash and reduced inventory for them and I thought it might work for the next big-ticket item: furniture." After an unusually lousy May and June, Ms. Howard had high hopes for their event, also the last weekend in August, even though summer vacations and back-to-school preparations tend to supercede furniture purchases at this time of the year.
While she will not share information on sales gains, Ms. Howard was not disappointed with the outcome. "As Vermont's largest furniture store, we are a destination," Ms. Howard said. "But we are a long drive for a lot of people and they pass a lot of other stores along the way." With one direct mailing the Thursday before the event, Buck's Furniture managed to lure customers not only from Vermont, but also from New Hampshire and Canada.
While some marketing experts predict the death of the employee discount, it's important to remember that without a national TV blast, most customers won't be paying attention to what kind of discounts are being offered until they are actually in the market for a bed or wide-screen TV. "We're not creating a new market with this sale," said Levitz's Mr. Marcarelli. Rather, they are piquing the interest of consumers. "If they feel we are credible and will give them the best deal around, then we've got their share of the market."
"Remember `you've got an uncle in the business?"' asked "TrendSpotting" and "Full Frontal PR" author Richard Laermer. "That's what has been missing in the marketplace. It's the idea that you don't have to go do an online price search because I will take care of you."
While he thinks the "employee" tactic can't last ("it sounds unfair to the employees"), he does believe that the "family" aspect, as exemplified by Ford's Family Plan, is a breathtaking twist. When the whole country is talking about family values, he said, shopping at a place that makes customers feel like family will make those customers feel like they are doing something right.
The common perception is that employee discount is the deepest discount possible. While other sales and discounts seem designed to get rid of last season’s products, the employee discount carries with it an air of "just because we like you."