Killing the Myths of the Discounting Strategy

Price decreases are not as sexy as they sound.

Certainly, to the consumer, a reduction in product pricing sounds quite attractive, especially in a world with fluctuating economic factors like inflation. Who doesn't want a little more jingle in their piggy bank? However, research actually shows that consumers are more likely to hold off on purchasing a product when they see a series of small price decreases.

"How can this be?" you might wonder. It's because small decreases, like in the case of online discount deals, give consumers the impression that the price will keep dropping lower and lower and even ultimately fall to a new regular, discounted price. Such price-gambling customers are hedging their bets to get the best deal possible.

Discounting Can Kill the Deal

What's more, in yet another study by Forbes, it was determined that frequent discounting instills an almost subconscious reaction among consumers that encourages them to wait for the next deal. This reaction is based on the implication that a lower price also means the value of the brand itself has lowered (and its quality right along with it).

Discounts can break the trust of loyal customers who are left wondering, "Why did I ever pay so much for this?" When discounts become frequent or predictable, they train customers to wait for the next sale.

Discounting Can Kill Your Brand's Value

In addition to encouraging consumers to wait for the next lower price, discounting has a very real and long-term effect on a brand's perceived value.

In one recent study, it was discovered that heightened consumer price sensitivity and aggressive competitor pricing can cause a devaluation of brands. Worse yet, they can cost producers millions in revenue. These are critical factors given brand perception and pricing have a proven link within consumer perception.

Prestige brands, in particular, know this link well. The impression of a deeply discounted Rolex watch or the image of the little Tiffany blue box with a clearance sticker on it does not conjure up the same allure as their traditional prestige pricing, does it?

Research also reflects an increased interest among consumers in brand value. In fact, a Harris Poll confirmed this growing interest, determining that U.S. shoppers are thinking about consumer goods brands in new ways — in a variety of products, including apparel, electronics, beauty, food, beverage, and more.

Even in times of economic uncertainty where the average consumer is hoping to stretch their dollars more, it can be this very fact that causes them to look for brands that they perceive to have higher value, better quality, and overall longevity. The old adage, "You get what you pay for," can ring even truer when budgets are top of mind.

In fact, one survey reports that consumers ranked the quality/value of a product higher than the price itself. Outside influences such as COVID-19, a recession, and inflation have changed how customers perceive value.

Despite some recent popularity in "throwaway consumerism" (e.g., fast fashion), in the long run, many consumers simply see this as wasted money and would rather have products that are built to last. Price is one very visual indicator that gives customers their first hints about a brand's perceived value and actual quality.

How Manufacturers Are Combatting the Chaos

It's discounting's ill effects like the above that cause a lot of chaos for manufacturers trying to price their goods at rates that ensure brand value, meet revenue targets, and a create fair competitive landscape for their distributors — all the while positively influencing consumer purchasers.

Discounting's "race-to-the-bottom" effects are also why many manufacturers — especially some of the hottest brands in the marketplace, like Apple, Champion, Sony, Nike, Yeti, and more — utilize a Minimum Advertised Pricing (MAP) strategy. This prohibits resellers, including online retailers, from dropping below the manufacturer's specified floor-pricing levels. It ensures pricing remains in the control of the manufacturer that owns the brand's value, not the reseller who can influence it.

Despite MAP being widely used by some of the top, most desired brands, a policy without protection is only as good as the screen it's typed on. Price monitoring is another critical component of a MAP strategy to ensure online retailers are not engaging in serial discounting. The only way to do so in this digital, 24/7 age of commerce is to utilize a price monitoring system that works as fast as the resellers themselves.

Fortunately, price monitoring, like MAPCOP, based on real-time data can help manufacturers enforce their pricing and maintain their brand integrity.

Lastly, along with price monitoring comes enforcement. Manufacturers must follow up quickly and clearly with resellers violating their specified MAP. It's the only way to ensure compliance is repeated and widespread.

Manufacturers, it's time to stop the chaos. Take back control of your price today by learning more about price monitoring and how it can help your brand.