Divya was keen to gift her daughter a Jimmy Choo handbag on her 17th birthday. The mother purchased the gift from an online store two months prior to her daughter’s birthday. Why? Because, the British high fashion house was offering all its products on discounts as high as 50 per cent off for a period of three days on an e-commerce website. Divya grabbed the branded handbag and a few other items during the sale period. She not only saved money but also fulfilled her desires of owning luxury fashion at unbelievable prices.
Discounts are all around and they are helping e-commerce sites to enhance their consumer base as well as widen the market. But are they really helping brands? Does the aspirational, dreamy value one attaches with Jimmy Choo really stay so special after it is made so easily accessible to everyone?
The online retail industry is heavily dependent on discounts to woo customers and they organize sale every few months. Many of the e-commerce companies are constantly coming up with sale periods, and have adopted an unrealistic pricing strategy repeatedly to attract a large consumer base. They believe offers and discounts are the right way to garner brand recognition and is a risk-free and cost-effective channel for customer retention. Most of the times, the e-tailers end up selling branded products at unbelievably cheap prices, so much so that these prices will be never found in brands’ offline stores. By offering competitive pricing, subsidised rates, aggressive promotions on superior quality products, e-commerce companies are driving the traffic to acquire customers, but isn’t it at the cost of the brand’s identity?
While discounts and promotional offers are attractive in the short run, the real problem lies when the price promotions attempt to kill the brand. Heavy discounts not only affect the brand name and market position, but also fail to generate sales in the long run. While e-commerce players helped brands shift their focus in the online space, they failed to help brands grow in a competitive atmosphere or churn out important growth-specific business habits and strategies. Large companies in many industries always set a minimum benchmark value of their product below which the product is forbidden to be sold. But not all fashion brands incorporated the same yardstick and therefore ended up with a huge disparity in what they offer in their physical stores and how they are displayed online.
A brand cannot be built only by offering discounts to customers; there is more to it, it should be more about increasing the brand value in the eyes of the consumer. If the brand is perceived to be valuable, then customers will be willing to pay a premium price for the brand’s products and services and stay loyal to the brand. However, on a regular basis, many fashion brands and e-commerce firms attempt something like running price promotions that tamper the brand value and swallow up the market value of the brand in the long run.
How Do Price Promotions Affect The Brand?
While the reasons for discounts and promotions may be plenty, e-commerce firms tend to overlook the long-term impact to the brand’s market positioning and value. By offering high discounts at regular intervals, consumers tend to become conditioned to buy their desired product(s) only during the sale period. They buy in bulk or hoard prouducts which would suffice them until the next sale. Customers are ready to compromise the quality just for the price. They are ready to experiment with new brands and switch between brands to avail a good price rebate. For a brand or an e-commerce company, continuously selling their products at discounted prices throughout the year greatly affects margins and brings down the premium attached to the brand.
Now, several e-commerce firms have started manufacturing their own private labels, as a threat to the existing brands. They are selling their private labels at rock-bottom prices, further hurting mainstream brands as well as the private labels. By pricing products of private labels way below the market average, the e-tailers are changing the overall dynamics of the industry for the sake of short-term gains while there may not be targeted benefit of such a strategy.
The Way Ahead
The key for a brand or an e-commerce firm is to differentiate its offering. The brand’s value lies in providing the customers with something unique and exceptional. If the brand fails to show a differentiation, then it would mean that the brand is competing solely on price. Brands need to take a stand in maintaining their price regulations and build their offline market simultaneously. To survive in the long run, brands should also look for solutions that integrate well with their offline and online space instead of treating the two as separate entities. There must be a synchronization in the brand’s online and brick-and-mortar image and the pricing must be at par. They should, in fact, set minimum limits for their products’ pricing online and only then can they ensure that their reputation, which is painstakingly built over decades, isn’t hurt by the e-commerce price battle.