Beware the Incentive Escalator

Price-based incentives are effective for attracting buyers and generating trial or enticing customers to buy again. But, using price breaks to stimulate sales comes at a cost greater than the amount of discount offered to lure buyers. All efforts to craft a desired meaning for your brand can be negated by a promotion-intensive strategy. An unintended consequence can be that consumers believe your product is not really worth full price if discounts are offered frequently. Although incremental revenue generated from price-based promotions may be realized, the distinction of “work hard vs. work smart” comes to mind. We have to work harder (i.e., sell more) to cover the expense of discounting, yet the potential damage to brand equity can still occur.

Evidence of what I call the “incentive escalator” is found in a report by Experian Marketing Services on search terms related to retailers. Percent-off deals are among the most popular searches, and consumers’ expectations of retailers’ deals seem to be increasing. In 2009, 20% was the most common discount search term; that figure shifted to 30% in 2010. Deals sought by many consumers in 2009 were not sweet enough just one year later. Where does it end? Will 35% be the top discount-related search in 2011? How high will consumers’ expectations soar about the discounts they believe retailers can offer? Similarly, an increase in searches related to free shipping indicates that online shoppers expect to continue to have access to incentives from sellers once they have been exposed to them.

Choose whatever saying you want: the cat is out of the bag; the horse is out of the barn; the toothpaste is out of the tube. Once price-based incentives become a norm associated with your brand there is no turning back. Strive to build customer relationships that are not dependent on price to reduce the chances of finding your brand riding the incentive escalator. Look to brands that you admire- chances are they have succeeded in ways other than discounting.

Marketing Daily - The New Consumer: '30% Off Is The New 20%'

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