The boom in discounting events is providing big benefits for British shoppers but many retailers are struggling to reap long-term rewards. Negative impacts on the bottom line are not uncommon as stores fail to mitigate the risks associated with offering lower-priced goods. To deal with these challenges, retailers must start thinking about how they can harness technology to devise smarter discounting and pricing strategies.
The trend to sell ever-larger proportions of inventory at discounted prices is partly a reaction to increased competition across the retail sector. In an already saturated market, new entrants often rely on aggressive discounts to attract customers and drive brand value. As traditional retailers suffer market-share erosion, they too turn to promotions in a bid to lure back customers and repair loyalty.
Retailers have also become more customer-centric in recent years, and many see discounts as a way to satisfy consumer expectations. While standalone sale-frenzy events, such as Black Friday and Cyber Monday, prove popular with British shoppers, demand for discounted goods remains high throughout the year. The proliferation of smart mobile devices, which allow customers to easily and quickly compare prices across competitor retail sites, has helped sustain this trend.
Handled correctly, price promotions can have a significant impact on sales and footfall, which can, in turn, support additional sales of full-price products. Under certain circumstances, discounting strategies are also linked with cash flow management and sustainability. The wrong approach, however, can create a number of risks to retailer businesses. Care must be taken to properly plan discounting events to ensure they provide positive impacts on bottom lines over the long term.
This will become even more important as pressures in the retail sector increase. The UK’s recent decision to exit the European Union is just one of many challenges on the horizon. Any drop in sterling will have a negative impact on margins while restrictions on trade with EU countries could lead to an increase in the cost of goods. If no trade agreement is reached between the EU and the UK, tariffs set by the World Trade Organisation will apply, which could further drive up costs for UK retailers.
Successful discount strategies
Smart pricing and discount strategies should seek to strike a balance between consumers’ expectations and the need to run a business profitably. It is also important that retailers differentiate between considered discounting strategies and ad hoc sale initiatives driven by fierce competition. Both have a role to play, and each must be factored into long-term business planning.
In today’s complex trading environment, discounting strategies must deliver on the value matrix that influences each purchase: brand, price and availability. It can also be useful to consider the economic law that price should be dictated by supply and demand. When demand is low, discounting can help drive consumer interest and sales. When demand is high, retailers should avoid discounts and continue to charge a high price. However, the rule does not apply when discounts are used to drive brand value.
Understanding consumer needs and expectations is another fundamental tenant of successful pricing and promotional strategies. Robust customer data can help retailers avoid blanket discounts across product lines and instead focus on delivering personalised offers and promotions. This can create a range of benefits, including driving customer loyalty, encouraging cross-selling and boosting sales.
How technology can help
Technology is already revolutionising the retail sector, providing end-to-end solutions that cover store operations, e-commerce, multichannel management point-of-sale, merchandising, enterprise resource planning and capabilities. But it can also play a key role in helping retailers overcome challenges when devising pricing and discounting strategies.
Technology-led retail management systems that provide stores with accurate, real-time view of sales, inventory and customer bases can help retailers formulate sale strategies and identify appropriate moments to run flash discount events. They also help stores run more relevant discounts, creating additional long-term benefits of increased customer satisfaction, loyalty and brand value. Retailers without these systems in place are missing an opportunity to optimise their merchandising, promotional, and pricing strategies.
Today, a wide range of retailer management systems are available in the market place. Retailers must carefully evaluate options and select the most suitable system to meet their specific needs.
Some of the key considerations include:
- an omnichannel system that can offer a single view of sales, inventory and customers across all touchpoints;
- forecasting and merchandising capabilities to ensure the right level of stock is available;
- a loyalty management facility and ability to capture customer preferences to run personalised discounting and promotional campaigns linked with social media and other online tools; and
- an integrated financial management and reporting system that provides real-time views on margin by SKU, location and campaign.
Overall, the culture of discounting and promotions will likely remain a core feature of the UK retail market for some time to come, and this will create new opportunities and challenges for today’s retailers. Technology can help mitigate risks to the bottom line, allowing retailers to plan and execute dynamic pricing promotions that will balance consumers’ expectations with the need to run a business profitably.