Retailers: Stop Playing the Promotion Game
Today's best retail strategies are less about by having the best discounts and more about devising smart ways to avoid them. Going against the promotional grain and avoiding sales is a powerful, brand equity-building strategy. Waitlists work better as brand-boosters than sales alerts. Limited inventory works better for brand affinity than overstock. "Sold out" works better for brand loyalty than "70 percent off."
Discounts and promotions are lazy retail marketing, aimed at achieving short-term gains within the old-fashioned retail model. A consumer-centric, data-driven, iterative retail approach is much harder to adopt and implement, but it is infinitely more rewarding.
In order to protect their competitive advantage, modern retailers need to turn their merchandise into so-called "Veblen goods." Outlier to the established economic link between supply and demand, a Veblen good is one whose demand and sales increases with its price.
A product's value is higher if it comes with superior customer service and a targeted, hand-crafted personal message. Shopping aggregator Lyst's data-driven and culturally plugged-in email program makes its brand more desirable from a customer point of view. Consequently, Lyst's has a better conversion rate than most fashion retailers.
A small "welcome" discount -- practiced by high-end fashion aggregators like Farfetch -- doesn't hurt brand equity and makes consumers feel appreciated and welcomed.
Gentle, timely, and well-written reminders of items left in the shopping cart don't need to have a promotional prompt to be effective. More important is that the message comes in at the right time, with the right copy.
Invite-only, extra-limited-time sales work well for VIP customers. A high-end digital retailer like Net-a-Porter knows who their best customers are, where they are, and what they like, and so rewards their loyalty via a special, private, occasional sale.
Value-adds vs promotions
Having a tiered inventory and a distribution strategy is a value-add that helps to avoid discounts. A brand like Burberry, which has different retail touchpoints -- a physical store, an e-commerce website and partner retailers -- can select the cadence of releasing merchandise across all its brand channels in a manner that caters to consumer demand.
The iterative approach to merchandise design as practiced by Everlane enables this direct-to-consumer retailer to sell products that its customers want and are willing to pay the full price for. Classic pieces that don't have a fashion expiration date never need to go on sale.
Everlane also combines social listening data, e-commerce and in-store sales data and search data to gain insight into the patterns of consumer demand across their merchandise. It informs decision as to when and where to make different products available, depending on when consumer demand is the highest.
Thanks to the behavioral economics of shopping, smart retailers like Acne Studios can, under veneer of an exclusive, limited-time sample sale, successfully get rid of last year's merchandise. Everlane resorts to similar demand-boosting tactics. In 2012 and 2013, this direct-to-consumer retailer shut down its website on Black Friday. In 2015, it offered shoppers a choice between three discount options, each of which contributed to health insurance of Everlane's factory workers to a different extent.
Waitlists and "back in stock" email sign-ups not only provide an organic email capture tool for brands, they cater to consumer psychology. Waiting for something makes us want it more, and value it more, when it finally arrives. Just ask Everlane fans.
Consumers today are so primed for deals that they won't even consider anything that's full-priced. According to NPD Group, two-thirds of all consumers are off-price buyers. In fact, many intentionally abandon their shopping carts on a regular basis in the hopes of triggering discounts by email. According to research, it makes sense: Getting a good retail deal makes us happy -- and we prefer many small discounts to a few large ones. Tyranny of choice plays a role, too: Faced with an overwhelming number of choices of nearly-identical merchandise, price has become our go-to decision-making tool.
But there are many other ways to steer consumers toward purchase. It is up to retailers to explore and employ them.