Discount sales, which were usually an annual affair, have become an everyday thing in the competitive retail market. In addition to the usual ‘Diwali Sale’ and ‘Spring-Summer’, ‘Autumn-Winter’ discount periods, many retailers now offer heavy discounts on occasions such as Mother’s Day, Rakshabandhan, Valentine’s Day, Independence Day and Children’s Day to name a few.
But what makes retailers offer frequent discounts on their merchandise? Is it a result of retailers’ wrong pricing strategy or something else? Going by people’s response to a recent poll question asked by IndiaRetailing – “Frequently offered discounts are the consequence of retailers’ wrong pricing strategy” – it can be said that wrong pricing strategies are responsible for the increasing number of discounts being offered by modern retailers. Of those who participated in the poll, 84.48 per cent replied in a “yes”, whereas only 14.66 per cent respondents said “no”; the remaining (0.86 per cent) preferred to stay “neutral”.
Responding to the poll question, Anant Daga, CEO, TCNS Clothing Company, says, “This is true to a great extent, but probably not the only reason for frequent discounting. Market dynamics such as competitive offers and a company’s desire to sell ahead of the demand curve, too, lend to short-term tactics, including discounting, which enhance immediate sales but hurt long-term brand objectives.”
Sumit Sahay, head-marketing, Infiniti Retail, however, does not agree with Daga. He says, “I don’t think it’s a reflection of a wrong pricing strategy as much as it is a reflection of a retailer’s first-level response to a very competitive market and an almost desperate need to wrest share in this competitive market by offering short-term reasons for consumers to choose them over others.”
Arun Narayan, head – sales & retail (India Operations), Titan Industries Ltd, is of the view that the retailer’s need to offer frequent discounts is really a consequence of consumers not seeing value at full prices. “In essence, the discounted price is the ‘right’ price at which consumers are willing to purchase and is a consequence of pricing the product higher than what it is able to command. Therefore, consumers wait for the ‘right’ price to purchase, necessitating frequent discounts,” he says.
Manish Saksena, COO, Tommy Hilfiger, says, “The discounts offered at various occassions on various products are a result of a number of factors such as poor sell through, non-seasonal products, poor fashion acceptance and, yes, definitely one of them could be a poor pricing decision.”
“A good product always finds buyers and is rarely discounted,” he adds.
Darpan Kapoor, director, Kapsons, believes, “Retailers usually keep the stock in bulk and when the movement of the stock doesn’t happen, they pour in discounts. The same happens when the product is not rightly priced as it doesn’t justify the brand.”
Giving an instance, Kapoor says, “If a product of Tommy Hilfiger or Gant is marked at Rs.4000, the same justifies the brand image and the customer is ready to spend on it; whereas, if the brand is wrongly priced as per its market position, it won’t be accepted in the market. To liquidate the stock, the retailer is bound to go for discounts.”
Stressing that the strategy to offer discounts in order to liquidate the stock does not help in building brand loyalty, Kapoor says, “These discounts/schemes lure customers for the first time, but they are not the right strategy to build brand loyalty, whereas retailers such as Westside, Globus and Lifestyle who have their in-house brands and place the product line rightly priced gain customer recognition and loyalty. Thus, these retailers don’t need to go for discounts frequently to liquidate the stock.”
As experts would, thus, agree, though a number of factors are responsible for frequently offered discounts, a wrong pricing policy is an important factor that cannot be ignored. Wouldn’t it then be better if retailers could rework on their pricing strategy instead of keeping the prices high and then looking for opportunities to bring them down in order to clear the stock!