Opinion

Price cuts may help retailers survive Christmas, but what about the long term?

4 min read

06 December 2017

An unprecedented number of retailers made aggressive price cuts ahead of Black Friday in an attempt to encourage shoppers into stores and onto websites. Now, however, analysts warn that it could damage brand identity, heading instead for a “Black Friday Hangover”.

Opinion is polarised between those who believe brands should participate in price cuts during events such as Black Friday and Cyber Monday and those who believe “rapid fire sales” may shift stock, but will damage reputations and margins.

Either way, we’ve come to the point where brands feel forced to participate in annual sales bonanzas. If you don’t participate you will loose a significant amount of topline revenue and customers. After all, Brits alone spent £6bn on Black Friday weekend.

But in today’s uncertain economic Brexit climate, keeping customers happy should be more than just offering knockdown prices; it should be about understanding customers and offering something that gives them a pleasurable emotional connection to the brand.

Some stores are known for slightly dragged out sales, which run as part of a regular promotional calendar. But Next signing up to Black Friday for the first time could be viewed as a knee-jerk reaction to weak sales, despite the retailer positioning the move as a “treat” that showed it was listening to customers. Airlines and personal insurers also jumped on the marketing band wagon.

In reality though, Next’s decision had nothing to do with treating customers to surprise price cuts; instead, it’s a fact that discounting across the industry has gone so far, resulting in customers failing to understand the true value of a product. The main, and only driving force in all this, is the price point.

Black Friday, Cyber Monday and any other fire sales are driven by a number of major retailers, such as Amazon and it’s left the rest of the industry without any other choice but to discount – even Selfridges went out at 20 per cent off for the Black Friday weekend.

In fact, recent research by LovetheSales.com suggests that less than ten per cent of customers are willing to pay full price for products. The direction this is heading in worries me.

Only a handful of brands can afford not to discount, like LVMH; acting in accordance with its business model where product, distribution, communication and price are core objectives. It’s been said staff should do such a fantastic job on the first three points that people forget all about the fourth. Although that sounds great, in reality, customers are finding it far harder to forget about price and are shopping about more.

As a result, the way brands are engaging with consumers in the luxury space is changing, and in the current unstable economic market conditions, you have to be innovative and not fall behind the the market. With the take up of mobile first shopping we now see 58 per cent of our melimelo.com customers shopping on their mobile phones.

The retailers that do the best are the ones willing to reinvent the most and willing to take some risks, as well. Today’s customer is so advanced digitally that unless brands start to cater for this mobile audience, it will mean losing out.

And although the vast majority of Britons actively participate in all these sales events, we are all just training our customers to wait for the next sale, surely this is not sustainable for any industry.

Certainly this makes it very hard for an independent brand to differentiate, and avoid it all becoming purely about price. Restricting supply may be the only way forward, ensuring we supply only those that don’t participate in such price cuts, which then gives us the reason to also stay away.

Douglas Ker is CEO of Meli Melo