Commentary

Seasonal Discounts Come With A Heavy Price

Now that Black Friday and, to a lesser degree, Cyber Monday have pervaded the consciousness of the consumer nation and are no longer inside-baseball terms tossed around in retail trade magazines, we are witnessing an onslaught of variations of the theme and musings on the meaning of it all. To illustrate the former, consider my stumbling across -- I really can’t remember how -- the fact that tomorrow has been dubbed Magenta Saturday by T-Mobile.

“It’s like Black Friday, without the ridiculously early wake-up call,” the copy reads. “Save big on our best 4G devices, even our fastest smartphones and tablets. Don't miss out, these offers available one day only, exclusively in T-Mobile® stores.” (Or online, if you insist.)

Tmo News, “the unofficial T-Mobile Blog,” presented a sneak preview of a 30-second spot promoting the deal earlier this week.

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Several of the comments about the event echoed my gut sentiments: the good deals were reserved for new customers signing two-year contracts and the savings weren’t all that terrific anyway. On the T-Mobile web page, I resented the tiny type used next for “down payment” underneath the huge type used for prices such as $49.95 for the Samsung Galaxy S™ 4G. Long-term monthly payments -- no doubt appearing under the “Other Charges” and “Taxes & Surcharges” portion of your monthly statement -- are part of the equation. All in all, I was seeing a shade of red all right, but it was not T-Mobile magenta.

Holiday sale prices may be inevitable but they’re not necessarily good for your brand in ways other than the smaller slice of profit.

Jonathan Salem Baskin, president of the marketing decisions consultancy Baskin Associates, has a piece on the Ad Age site maintaining that the seasonal price cuts supported by hard-sell marketing efforts damage brands year in and year out. Here’s the gist of the argument:

“Promotional pricing slashes perceptions of brand values. This is a tough one to wrap your head around, but consider that you've priced your branded product at X all year long, but now it's available for X minus Y. You can see this as offering a consumer benefit -- they're getting more for their money -- but consumers can easily come to perceive it as the ‘correct’ price for what they're getting. This becomes an issue for 2012.”

If you buy the premise, you’ll want check out Baskin’s recommendations for having a plan to recover your losses as the cycle begins anew in January. (e.g., “re-imagine and invent a new value prop for your brand.”)

In this coming Sunday’s New York Times Magazine, there’s a think piece carrying the provocative headline, “Could Every Day Be Black Friday?” I see knees jerking in strategy rooms across the marketing universe. “Well, of course not,” sounds the chorus.

“If an alien with an accounting degree touched down in America, it might conclude that we’re a weird cult that spends 11 months living frugally and four crazy weeks buying tons of stuff we don’t need,” writes Adam Davidson, the author of the story and co-founder of NPR's Planet Money. “It wouldn’t be entirely wrong, either.”

But Davidson isn’t suggesting that you extend your mark downs and come-ons indefinitely. He writes:

“The main problem with an extended period of price discounts is that if companies end up with lower profits from smaller margins, they may need to fire even more people, thus raising unemployment even further and making shoppers even less likely to spend.”

Long-term deep discounts could also cause “deflation” -- a stalemate where consumer and business play chicken with their wants and needs, waiting for prices to go down even further. What Davidson proposes instead is a word we’ve been conditioned to loathe as much as castor oil. Inflation.

“Like a defibrillator, inflation is a blunt tool that, used exceedingly sparingly, can sometimes save the patient,” Davidson writes.

The gist of this argument is that just as consumers and business will hesitate to buy or invest if they think things will get cheaper in the future, they’re more likely to spend now if they believe prices will rise in the future.

“In our bizarro economic world, where inflation can be good and discounts can be bad, the best long-term hope for the future might be the thing that most terrifies us,” Davidson concludes.

I’ll reserve judgment on both Baskin’s and Davidson’s elixirs for the economy except to say -- as we gear up for a flurry of stories about the viability of society as we know it based on retail sales over the next 10 days -- trust me, reading them will be good for you.

 

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