Semi-permanent discounts are damaging retail
Retailers are under increasing pressure to slash prices to keep up with competition and lure shoppers, but this practice is bringing more drawbacks than benefits, according to new research from Klarna, a payments provider.
The survey of 500 British retailers revealed that 53% of companies believe that ‘always on’ discounting is damaging their ability to make profits. In fact, 11% of those surveyed said discounting cost them over £25,000 in 2017.
The widespread discounting, no longer confined to the traditional winter and summer sales, is also having an impact on customer expectations, with 57% of consumers expecting regular sales.
Merchants of all sizes are feeling the burden, but the e-commerce channel seems particularly vulnerable, as 56% of retailers said the majority of their discounted transactions come from online sales.
“Many merchants will discount to shift unwanted stock, so part of the solution is to make better, more educated purchasing decisions,” commented Luke Griffiths, Managing Director at Klarna UK.
“But our research also shows how retailers can win over customers without slashing prices. Instead of discounting, merchants would do well to focus on perfecting the customer journey - from an inspirational browsing experience through to a seamless checkout phase, with multiple payment options and one-click repeat purchase options.”
The research shows that customers are gradually turning away from the frenzy generally associated with sales. Just 18% of respondents shop only when there is a sale on. Instead, there is growing appetite for more thoughtful, personalised sales tactics, with 45% of shoppers more likely to shop if they were sent a personalised offer.
Furthermore, 25% of consumers say they are less likely to shop regularly with a retailer if it always has sales on, and 38% think that discounting makes a brand look cheap and unfashionable.
So what can retailers do to avoid the sales spiral? The research suggests they should focus on providing more shopper-centric initiatives to win business and loyalty. A buy now, pay later option could be key, as 36% of consumers would be more likely to buy full-price items if they were offered a way to pay once they had received the goods, says Klarna.
“Providing an exceptional customer journey at any time of year is vital. It’s clear that merchants and consumers are increasingly disillusioned with discounting and should look instead to ‘surprise and delight’ shoppers in the everyday user experience. They can do this with features such as a mobile-optimised checkout, one-click purchases, deferred payment options and personalisation,” Luke Griffiths continued.
Andy Mulcahy, strategy and insight director at IMRG, added: “Using discounting as a means for triggering activity is nothing new, the difference today is that it seems to be more regular and more widespread than was the case previously. That said, getting the basics right – selling items that genuinely appeal to the target demographic, optimising areas of the experience, providing leading service – remains the most effective method for increasing sales in a way that is far less reliant on discounting.”
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