KEY POINTS:
The rush to slash prices in a bid to counter a slump in sales may hurt a retailer's brand, says a marketing specialist.
Dr Paul Pickering, Auckland University of Technology's senior lecturer in marketing and sales management, warns that retailers should be careful about adopting a slash-and-burn approach
to gain customers during the downturn.
He has been advising clients and teaching students for the past 20 years about the five Ps of marketing: product, price, place, promotion and people. But he said at the first sign of economic tightening, the blood rushes to the collective retail brain to obliterate all but price. "Nationwide wholesalers through to single site specialty retailers start behaving like the Reserve Bank with only one tool in their toolbox."
Pickering said a customer gained through price will seldom be brand or store loyal.
"Research tells us that on average, profit isn't made from customers until they've made several purchases from a store. During a sale customers are in fact a cost to a business both in monetary and brand equity terms.
"As soon as the retailer restores prices to normal and profitable levels, the bargain hunter rides off into the servicescape in search of the next 50 per cent sale, leaving the loyal customer scratching their head wondering whether the relationship was ever that mutual in the first place."
Pickering stressed that he was not belittling the potential impacts a recession can have on the survival of some businesses. But an economic slowdown was an opportunity for retailers to stand out from their competitors.
Before slapping a huge sale sign on the shop window, the business owner should ask if huge discounts will generate new loyal customers and if the additional cashflow outweighs the costs of restoring prices to sustainable levels.
"Given value is as much based on perception as it is on cost realities, can your business really afford the medium- to long-term damage that may be done to the brand or brands you represent or worse still, to your own business brand?"
Pickering, who held business development roles in the corporate sector for more than 15 years before joining the university to co-develop its new sales management major, was not against the practice of discounting. He said it was an effective tactic to bring in customers at particular times during the business cycle, such as when moving end-of-line stock.
"But unless, like the largest retailers, price leadership is what the business is always about, it's unsustainable beyond the short term."
Package deals, in-store promotions, and competitions were a better alternative, he said. But New Zealand retailers sometimes miss the best business opportunity of all: to give customers outstanding service.
"This will deliver more value than a discount every time."