Just what do consumers think about the discounting going on in retailing at the moment? And what impact is it having on the whole retail sector?

We think that it is seriously damaging and in this month’s comment we use our consumer research from various reports to demonstrate how and why.

If there is one underlying message that comes out of our retail research it is that consumers are savvy. They are very well aware of what they are doing and they adjust their behaviour to current conditions. It’s obvious how when a retailer’s offer falls short of expectations that they walk away. And it is a truism of retailing that it is much easier to lose customers than to pick them up again.

That has to be the background to our findings about pricing and discounting.

In the long term, constant discounting is counterproductive

The most damning comment comes from Mintel’s Christmas Shopping Habits – UK, February 2018 Report. We have reached the stage where consumers do not trust retailers’ “full prices”. Naturally there are some honourable exceptions to that, but the general lack of trust is evident

We asked the same statement regarding promotions around Christmas two years in a row and found that between 2016 and 2017 consumers have become even more cynical. The increase in the number of people who agree with the statement is considerable and far more than could be dismissed as a statistical sampling error.

Figure 1: Attitudes to pricing, Christmas 2016 and 2017
Base: internet users who bought gifts for Christmas, 1,865 in 2016 and 1,826 in 2017

“Promotions available round Christmas mean you don’t have to pay full price for gifts”

[graphic: image 1]
Source: Lightspeed/Mintel

Buying online

On a similar theme the next data comes from Mintel’s Online Retailing – UK, July 2017 Report. This time we are talking about online non-food purchases and not just Christmas gifts. The research came mid-way between the research shown in the previous chart, but the results are very similar.

Figure 2: Attitudes to discounts online, May 2017
Base: 1,810 internet users aged 16+ who had shopped online in the previous 12 months
[graphic: image 2]
Source: Lightspeed/Mintel

Training to expect discounts

There was a time when discounting was restricted to sale periods or to sort out a particular stock problem. But that’s no longer the case. The advent of planned promotions such as Black Friday are now known fixtures in the calendar and people know they can afford to wait for them.

The next chart is taken from Mintel’s Black Friday – UK, January 2018 Report. This report found that just over 40% of all consumers said they purchased something during the 2017 Black Friday sales.

So – did retailers need to discount to drive these Black Friday purchases? Naturally, if prices had been higher sales would have been lower, and, leaving aside the fact that many Black Friday promotions are special purchases and planned well in advance, it is probably that even on the lower sales profits would have been higher.

As shown in the graph below:

  • Almost three-quarters of the purchases were of things people had planned to buy anyway.

  • Almost two-thirds were things that would have been bought earlier had there been no Black Friday.

  • A third were bought anyway at ‘full’ price when they found products were not discounted.

It is hard to escape the conclusion that Black Friday is an opportunity for retailers to collectively shoot themselves in the foot, and they welcome the opportunity with open arms.

Figure 3: Attitudes to Black Friday promotions, November 2017
Base: 818 internet users aged 16+ who had bought something on Black Friday
[graphic: image 3]
Source: Lightspeed/Mintel

Electricals

There is one nagging doubt in this discussion – how can we be sure that a price really is discounted. We know how the law stands but we also know that there are retailers who seem able to get around it. In our consumer research we can only measure what customers perceive the price to be.

Take electricals, for example. The data below is from Mintel’s Electrical Goods Retailing – UK, February 2018 Report which found that overall, 51% of those who had bought electrical goods thought they had paid the full price and 45% thought they had paid a discounted rate.

However when this is split by in-store and online, online shows a much more even distribution between those saying they paid full price and those who said they got a discount. Whether the discounts online are genuine or not, the level of promotional activity in the online space clearly continues to drive a belief that buying online is cheaper. And for all that we think that too much discounting is a bad thing, there’s no doubt that customers like to feel they have got a bargain.

Figure 4: Electrical goods buyers who had paid full price or a discounted price, Nov 2017
Base: internet users aged 16+: 746 who had bought electrical goods in-store; 1,046 who had bought electrical goods online in the last 12 months
[graphic: image 4]
Source: Lightspeed/Mintel

Where next?

Of course low prices are important, but it seems to us that one of the effects of increased online competition is that retailing will be increasingly transparent. Level prices will be a given and retailers will have to compete on everything else.

Cutting prices is lazy retailing and ultimately it is a short cut to disaster. Retailers must compete on everything else – everything that is not susceptible to easy comparisons – so that is range, fashionability, store or website design, layout, service and convenience. The old saying that “Retail is Detail” seems to have been forgotten in a rush to the bottom on pricing.

There are a few honourable exceptions to this diatribe. Next is the obvious one. Maintaining pricing integrity has been central to its retail proposition since its foundation and it has not suffered from it. In fact over the last decade it has been one of the best performers in fashion retailing, even in the dark days of 2009-10. Interestingly it flirted with Black Friday for the first time in 2017, but its offering was shallow and half-hearted and perhaps spoke more to the stock issues it had in the first half rather than any inherent wish to join the Black Friday party.

It is time that more retailers followed its example. Mintel Trend Lets Make a Deal highlights the growing prevalence of people who think that they can negotiate on price. It is the direct corollary of what we have been talking about here. People feel able to make a deal if they don’t trust the pricing level in the first place.

So this attitude to prices is a direct result of retailers’ own actions in undermining trust in their own pricing. Too many retailers now have a reputation in customers’ eyes that there is no point in buying something until the price is discounted.

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