Are Coupons Killing Retail Brands?

A November 29th article in Wired Magazine titled Bargain Junkies are Beating Retailers at Their Own Game, reminded me of my ongoing concern about the future of retail brands. I commented to some colleagues about it, then saw an Ad Age article Why Groupon Could Own Your Brand’s Future.

Bargain Junkies refers to Groupon as representing a new current in American consumerism, the creation of a proactive consumer underground that streamlines the sharing of deal information. In Why Groupon Could Own Your Brand’s Future author, Jonathan Salem Baskin advises “beware the tyranny of price.”

Groupon and other coupon and deal hunting sites are symptoms of a substantial threat to retail businesses. There have always been coupon hunters, but the internet makes it easier than ever. Now, besides what you find on your own, you also get information from your social networks, including social sites built around retail deals.

As the recession grew deeper, we watched price reduction became the primary sales driver. Indications are that consumer behavior has changed and bargain hunting is the new standard. The difficulty in maintaining profit margins is only the surface problem.

The marketing challenge to drive revenue today becomes a brand challenge to create preference for tomorrow.

Price wars, coupon promotions, loyalty programs and deals of every stripe combined with the new frugality of consumers has created a monster for retail brands. Consumers have been taught that the price isn’t the price. If they wait, the item will go on sale, they’ll find a coupon or there will be a BOGO (But One Get One) promotion.

Luxury brands like Gucci, Louis Vuitton and Hermes had always been the exception to price driven marketing. Earlier in the decade their growth numbers were strong as emerging luxury markets like China and the Middle East drove sales with a new consumer group clamoring for the trappings of success. But these markets were not safe from the ravages of the worldwide economic crisis. And in this country, affluent consumers joined in on the general reluctance to spend through the recession. In a 2009 article in Adweek, Mark Dolliver said “…discounts became a fact of life in the luxury sector.” Regarding the long term effects of discounting he quotes Luxury Institute chief executive officer Milton Pedraza “It does dilute the value in the minds of luxury consumers.”

So we see discounting strategies across all retail sectors. Luxury brands serve as an easy to see illustration of the potential for brand dilution. Although, ironically, significant growth results in brand dilution for luxury products as well. If you see more of them around, they lose the cache of exclusivity.

The question is how can brands protect their margins in the short term and build and maintain brand preference in the longer term? The pricing focus of consumers is a runaway train not easily stopped. Online sales have always been the playground of competitive shoppers and bargain hunters. It may be that the bricks and mortar stores are where largely untapped opportunities for building brand exist. If coupons are going to drive traffic to the stores, it behooves us to provide a better shopping experience to encourage consumers to stay and to return.

Brands should be looking to make the shopping experience, to use an overused word, engaging. The in-store experience, the point of sale experience, provides a fantastic opportunity to provide an immersive brand experience that can help consumers find added value and help them forget about coupons and saving a few percent. This might mean store design, amazing service, entertainment or POS technology. Point of Sale technology used to mean credit card swipes and quick approvals. With today’s technology options, an in-store augmented reality experience could break through the shopping sameness (for a while – rewards to the early adopters). JWT, in their trend predictions for 2011 says that a key trend is consumers willingness to commit to technology. While they were likely referring to technology as purchase, as opposed to consumers’ general reluctance to commit to other big ticket items, we might reasonably extend that concept to technology as experience.

That experiential focus should be applied to web and mobile strategies as well. There is a tremendous opportunity to build brand in these digital environments, but to do so we must look hard at the needs, expectations and behaviors of your brand’s visitors. A great web experience is different from a great in-store experience. Also, providing a great web experience is necessarily different by category. A visitor to a bank site has different needs and expectations than a visitor to a fashion site. See my next post for more on this, but a few generalities can be mentioned now.

Time is money. Speed is increasingly important. Thus pages must be optimized for fast load times and easy, intuitive navigation. While this doesn’t necessarily create an obvious, positive brand experience, there is no doubt that slow load times and confusing navigation provide a negative brand experience and causes site abandonment.

Mobile is certainly at the point of accelerated adoption, but there are a lot of bad mobile sites and apps. There is great opportunity for differentiation and creating value by effective use of these channels. Strategies should carefully consider mobile site vs. native app. Even more that on visitors’ PCs load times on mobile devices are a huge issue.

Use an imagery strategy that is unique to your brand. If you are an insurance site, devoting a large amount of valuable, above the fold real estate to a stock image of a senior couple walking hand-in-hand on the beach is promoting your category rather than your business. It provides no distinction from competitors.

Whether on the web, on mobile devices, or at the point of sale, retail brands need to recognize the damage they’ve done to themselves in the pursuit of short term revenue. This means once again focusing on relevant differentiation and creating brand preference. Unless your brand is a discount brand with lowest price as its core attribute, playing in that ballpark as a strategy is a formula for decreasing loyalty, a continuum of short term revenue struggles, and a diluted brand.

2 Comments

  • Glen Gunnell says:

    Great article Allan,
    I am currently studying business administration and specifically what makes a ‘sustainable competitive advantage’. for a company, strategy and mission needing to be aligned. Is “differentiation and creating brand preference” the solution for e-commerce retail then?

    • admin says:

      Thanks for your comment Glen. Sustainable business advantage is virtually synonymous with brand equity. If you look at Fortune 500 brands, the intangible components of market capitalization account for about 80% today, vs. around 30% twenty years ago. By far, the largest intangible component is the brand. The brand promise, which might be articulated as “XYZ is the only company that ___”, provides differentiation. The company’s ability to deliver upon that promise in a way that fulfills the needs and desires of customers and stakeholders drives preference, loyalty and advocacy.

      Whether we’re talking about a bricks and mortar store, an eCommerce site, lead gen site, brochure or portfolio site, visitors are interacting with the brand and forming opinions, perceptions and emotional responses. Visitors needs and expectations are certainly different in a store experience vs. an eCommerce experience. Success comes from making either experience satisfying. To use Amazon as an obvious example, selling everything from A to Z, Amazon provides a superior search experience making finding products easy. As they get to know repeat visitors, the experience improves. Also, repeat visitors have the option of 1 click checkout which improves a notoriously painful part of the eCommerce process, reduces cart abandonment and makes the buying process delightful. Amazon continues the great experience with timely delivery and packaging that augments the brand experience of receiving your purchased items.

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