Friday, March 23, 2012

Discounts! Wow!

A couple of days back, I tweeted, "These days, people shop only when Discount is available. Discount has become the biggest brand." Some people seem to agree. In which case, there are huge implications.

I am quite intrigued by discounts. My interpretation of brands that go on discounts is this. Either the total supply in the category exceeds the demand. Or the particular brand's supply exceeds its demand in the market. Standard economics.

These are the possible layers of outcomes resulting from discounting. Layer-3 follows Layer-2 follows Layer-1.

All marketing happens to create perceptions which lead to the desired outcome, right? When discounts become a recurring and a quite-awaited feature of the brand, what can one say about the perceptions getting created?

If one looks at Layer-3, one theoretical possibility is "Image is intact" for both, brands making net loss as a result of the discounts and brands making net profit even after the discounts. Is there a hope that when a good number of sales happen and people really start liking the brand, they would start paying the 'normal' prices and forget the discounted prices? But is that a possibility in real? My judgment is that brand image takes a dip and people might not be willing to pay 'normal' prices once accustomed to paying at certain levels of prices.

Discounts are a downward spiral. What happens if the "image is hurt"? Since people would resist walking in, offer more discounts? And then?

If companies make a good Net Profit even after discounts then why discount at all? Reduce the prices across the board, so that customers are willing to walk in at any time of the year, if they like the brand.

I don't have hard numbers to substantiate the hypotheses or judgments in this post. Some numbers would help understand the phenomena better.