Best Practices by Kurt Salmon
Most retailers readily admit that the chronic use of excessive, and often unplanned, promotions can have serious consequences in terms of margin erosion and erratic sales. Still, most willingly suffer those consequences in exchange for the short-term benefits of hitting top-line sales goals and stealing share from competitors. But what many retailers fail to realize is that this continual reliance on reactive promotions comes at an even steeper long-term cost. It often means foregoing a disciplinedexecution of a pricing strategy that would both enable precision and optimization, and also build customer loyalty by instilling confidence in a consistent price-value proposition.
There is nothing wrong with price-driven promotions in and of themselves. They can be an extremely effective way to attract new customers and drive incremental traffic. There is also something inherently exciting about a price promotion; the sense that as a customer you’re “seizing an opportunity.” Promotions condition the customer to expect the unexpected, create a sense of urgency, and can quickly deliver an increased conversion rate or larger basket size.
However, recent promotional excesses may have had an adverse impact on customer behavior. Over the past few years in particular, retailers’ frenzied price changes have conditioned customers to think that the ticket price is not real, and cynical customers have become numbed to typical discounts, requiring ever deeper price cuts to stimulate an increase in demand. [Read more…]