Richard Umbers, CEO of Myer says that there is an emergence of widespread discount fatigue among consumers. I agree with Umbers that there is discount fatigue but I would contend that this is nothing new. It has been around for many years but it is getting worse and it has become endemic.
Many years ago a talented executive close to the retail industry told me that he never bought merchandise at full price. It had to be discounted by at least 30 per cent before he would consider purchasing anything. We were at a social get together and it was inappropriate to discuss contentious subjects so I declined to enter into a debate. Had I done so, I would have pointed out that discounts offered these days are academic. In the ‘old days’ many retailers worked on a 50 per cent markup and cleared their stock twice a year at sale time. Nowadays rather than working on a margin of 33 per cent, retailers often hover in the 80 per cent’s – a far cry from the old days. As a result the discounts are huge and easily accommodated.
We know the reasons for the high margins currently being required but from a customer’s point of view, they rightfully think that things are terribly expensive. Take an item at a cost price of $10 and selling at $15. The same item now would be selling at $50 (80 per cent margin). Ok – everything has changed and the transition to much higher margins has been gradual over a period of time.
But what can we do about discount fatigue?
We could use a lower margin and discount less ensuring that the end result is more or less where it ends up anyway. This is in keeping with various slogans such as “everyday low prices” (Woolworths) or “lowest prices are just the beginning” (Bunnings).
Or we could put both the cost price and the selling price on every item and let the customer decide!
And what about good old fashioned bargaining?
Stuart Bennie is a retail consultant at Impact Retailing www.impactretailing.com.au and can be contacted at firstname.lastname@example.org or 0414 631 702