I get a little confused when I see rows on rows of malls and retail stores simultaneously offerring shopping discounts. Retail Marketing 101 teaches us that while selling the same product, it makes sense to differentiate ourselves. And here we have, a discount season where all sellers try to differentiate themselves in the same way, and end up not differentiating anyone! Can different retailers not have different discount sales strategies?
Assume you are the owner of Defector Mall, selling consumer durables, apparel and clothing, and is now faced with the prospect of offerring discount for the coming diwali season. With all the competitors preparing for the seasonal discount sales bonanza, Defector Mall is faced with an interesting sales dilemma. If it joins the seasonal discount sales bandwagon, it will surely profit from an increased sales. But if it defects and does not offer discounts, then it risks losing a large market share which would very adversely affect its profitability. But is this only an illusion?
Why not adopt a contrarian strategy of offerring discounts, say a month or two before the diwali season? Attractively marketed discount offers will attract customers, irrespective of the time. Numerous studies have shown that a substantial portion of the festival sales arise from deferred consumption savings. People exhibit rational expectations and postpone their purchases in anticipation of the coming discount sales. By declaring sales discounts before the coming sales season, Defector Mall puts itself in a position to prematurely lure out a large number of festival shoppers, in addition to the regular discount shoppers. As basic economics teaches us, in a market with few competing bargains, Defector Mall will emerge a winner. It would be able to optimize its sales with this strategy than if it had joined the discount sales bandwagon.
Maybe you can also attract a number of those shoppers who prefer not to shop in an overcrowded mall, jostling for space and rubbing shoulder to shoulder with other customers. And mind you, this category is not a small one, and they will have a higher purchasing power and shopping propensity than your regular customers. If everything goes according to the aforementioned premise, Defector Mall could optimize its timing and position itself to attract the right kind of customers, and thereby make a substantial addition to its bottom line.
There is need for a more detailed analysis of consumer spending patterns and motivations before we can draw substantial conclusions. What percentage of shopping during festivals are gift purchases? What are the more popular categories of gift purchases? What is the proportion of seasonal sales as opposed to regular sales? Is Indian retail shopping market so seasonally concentrated as the US market is with say Christmas? What are the optimum sales seasons for different categories of products? How much would a shop be able to attract in additional sales by reducing prices, than it would have by not offerring discounts? Of the annual sales figures, how much will profitability be affected by offerring discounts at the same time, as opposed to staggerring it?
Increasingly, shops promote massive discounts, but restrict the actual discount offers to just a few categories. Indeed the discount sales offers in many malls are confined only to those goods which are less in demand and whose stocks have hence piled up. Along with these goods, the mall displays all its new and regular materials to the customers attracted by the promotion. Given the psychology of modern promotion driven consumer shopping, taking the customer to the product is half the job done! If this sales promotion strategy succeeds the shop gains on two counts - it is able to sell off its less popular products and also have a larger number of customers visit it.
This brings us to an important, but less noticed characteristic of mass maketing. The immediate objective that drives discount sales promotions is obviously that of increasing sales of particular categories of goods. But more strategically, it also brings larger number of customers to the shop, than otherwise would have come. With a captive customer audience, malls have an opportunity for aggressive sales promotion of all categories of products. The discount sections in malls are as overcrowded as the non-discount sections are empty. Even the sales staff are absent from the non-discount sections. There is no structured or consciously worked out plan that will incentivize shopping in the non-discount sections and dis-incentivize shopping in the discount sections. (assuming over crowding is no dis-incentive) There is an immediate opportunity wasted here. There is the parallel to be drawn from the story of the rude waiter in the cheaper section of the restaurant, whose behaviour is an incentive for eaters to patronize the more expensive eating section and stay away from the cheaper part. (Tim Harford in Undercover Economist)
Here again, I am inclined to believe that the day is not far off when we have shopping discounts, spread out over the entire year and not restricted to seasons. Each Mall could have a strategy to differentiate itself and to optimize its sales. Even if such a strategy may be difficult to pull off for mass products, it makes great sense for more niche products, whose sales are spread out over the year.
Such contrarian strategies could have interesting conseqences and will surely add to the competition and will benefit the consumer. The day may not be far away when we need not look in eager anticipation for the annual discount sales, but can have a bouquet of discount offerrings to choose from right through the year! All malls would be Defector Malls!
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