In the short-term such extreme initiatives can be effective in attracting attention, generating high customer traffic volumes and improving cash-flows (albeit with squeezed profit margins). However, judicious use of “extreme discounting” is recommended.
First, think of the consequences.
“Extreme discounts” do attract widespread attention, can generate increased sales and revenue in the short-term and therefore, for specific time-periods, have the capacity to redirect traffic flows.
But the tactic is fraught with potential intermediate-to-long-term brand damage consequences. Questions about profit margins and value are understandably raised in the minds of many existing, prospective and past customers, along with those in the media and other spheres-of-influence.
This is particularly so for commodities like retail petrol, which too many is a non-emotional grudge purchase. Responding customers will take advantage of $1.00 a litre petrol prices, as recently offered in metropolitan Adelaide (in contrast to the prevailing $1.51 per litre standard retail price), but the prospect for repeat business and loyalty is scant.
For the right reasons, and for appropriate events, “extreme discounts” are effective in exposing companies, premises, products, services, periods, brands and models to a broad cross-section of new prospective clients and customers. They can be pertinent for the introduction - or for the deletion - of brands, models, colours and the like.
Compensating full profit-margin offers and transactions are, or should be, integral aspects of the total strategy and value package. Remember, someone must pay the piper.
‘Extreme Discounts” can promote and establish high profiles for business, product and service names.
However, when poorly executed and too-frequently conducted, the brand can be, and often will be, inextricably associated with and be positioned by reference to the offer of extreme discounts.
Cash-flows will rapidly recede and dry up between “extreme” events.
The parallels with an over-reliance on the conduct of “sale” events are ominous.
IT DIDN’T HELP
Among the first advocates and adherents of “extreme discounting” were the department stores.
Featured among the post-Christmas sales offerings were a limited number of $50.00 television sets, refrigerators, lounge settings and dining room suites.
Only a very few of the teeming thousands of consumers awaiting opening hours for those ”door-buster” bargains went home happy and fulfilled. For most it was an unrewarding experience, with long-term adverse relationship and reputation consequences.
Moreover, for the department stores, it did little to enhance their images, appeal and economic viability.
Electronic appliance retailers learnt similar lessons, - to their own detriment.
It is important that the integrity of the brand name, be it company, product, service or premises, be respected and protected. Therefore, it is best that extreme discounts be associated with the positioned against special and date-specific events. When seasons are too long the possible flow-on consequences are too great.
These events can include generic occasions like “Cyber Monday” (late November) or Halloween. This tactic will ensure that there is minimal or no carry-over from the expectations and images of huge price reductions.
“Dare to be different” is a challenge accepted by many. “Pushing the envelope” is another philosophical stance which can and often does lead to innovation, creativity and change. Both are relevant to the concept of extreme discounting, but do need to be applied with some degree of reserve.
EXTREME IS RELATIVE
A key lesson often learnt and widely forgotten during the past decade is that the measure of “extreme” is relative rather than absolute.
Prior to the turn of the century discounts of 15% and 20% were considered substantial and attractive. New, disruptive policies that were introduced changed the focus from post-Christmas sales, to pre-Christmas savings of up to 50%.
It did have an impact among consumers, not the least of which was educating consumers to expect, and then to demand 40%, 50% or 60% incentives. Once such inducements would have once been considered extreme. Not anymore. “Extreme” means 70% or more. Where does it end?
Being extreme can, and does have, extreme outcomes ... often not all are positive.