Despite the cautionary tales offered by JCPenney and Abercrombie & Fitch—both of which suffered severe consumer backlash for their decision to eliminate deal-based pricing—a growing flock of stores has announced that they are seeking to reduce the amount and number of discounts they offer to shoppers.

The reasons for the moves are clear. Consumers have grown so accustomed to sales that they seemingly refuse to consider full-price items. If they can wean their shoppers off such sales, retailers such as Express, Quiksilver, and Vera Bradley can improve their margins, move more recent merchandise, and reduce their promotional costs. Furthermore, several retailers have expressed the belief that rebounding economic conditions allow shoppers to focus on factors other than price in making their purchase decisions.

Research in online retail channels also shows that when customers’ first encounter with a retailer involves the purchase of a discounted item, they are half as likely to return to the site to purchase again. By establishing an expectation of sales, retailers thus might be driving return business away from their sites.

Even if they halt the constant cycle of markdowns though, retailers cannot give up completely on discounts. At the end of the season, they still need to clear their racks for new merchandise. Therefore, stores such as Neiman Marcus and New York & Co. are experimenting with more targeted deal offers. For example, sales of a particular product line might be made available only to customers who bought other items in that line from the retailer in the past. Alternatively, deals might be limited to certain items, rather than extending to the entire assortment.

Discussion Questions:

1. Why do some retailers believe they can cut back on discounting?
2. What tactics might retailers try with regard to pricing if they halt across-the-board discounting?
3. Are customers who purchase discounted merchandise more or less loyal than those who purchase full-price merchandise?

 

Source: George Anderson, Retail Wire, March 26, 2015