AUT academic warns against retail slash and burn
At the first cry of "Recession!" retailers en-masse rush to implement it, says AUT business academic Dr Paul Pickering.
But the AUT Business School Senior Lecturer in marketing and sales management warns in doing so, retailers could be
damaging their brand.
For 20 years Dr Pickering has been advising clients and teaching students about the five Ps of marketing: product,
price, place, promotion and people. But, he says, at the first sign of economic 'tightening' the blood rushes to the
collective retail brain to obliterate all but price.
"Nationwide wholesalers through to single site specialty retailers start behaving like the Reserve Bank with only one
tool in their toolbox," says Dr Pickering.
"Then it's difficult sit on the sideline and watch the retail sector, which has benefited from years of hard work,
innovation and application of sound marketing strategy, bring it all crashing down around their ears like a frustrated
child destroying the sandcastle in a fraction of the time it took to build it."
Dr Pickering says a customer gained through price will seldom be brand or store loyal.
"Research tells us that on average, profit isn't made from customers until they've made several purchases from a store.
During a sale customers are in fact a cost to a business both in monetary and brand equity terms," he says.
"Then, as soon as the retailer restores its prices to normal and profitable levels, the bargain hunter rides off into
the service-scape in search of the next 50 per cent sale leaving the loyal customer scratch their head wondering whether
the relationship was ever that mutual in the first place."
Dr Pickering warns that if a business regularly jumps on the discounting train then it shares the responsibility for the
transactional, rather than relational, market environment which develops.
"The drastic deregulation and market reforms of the 1980s forced us to become a nation of customer focussed small
businesses able to provide flexibility, service and levels of customisation not offered by larger counterparts," says Dr
Pickering. "During the tough days ahead managers should emphasise these advantages in their communications and
interactions with customers."
He adds that he's not belittling the potential impacts that recession can have on the continuity of some businesses.
But, he says, an economic slow down is the time for retailers to get creative and reinforce what differentiates their
offering from others in the market.
"Before retailers follow the temptation to slap the 'HUGE SALE' sign on the window again they should ask three
questions:
"Will creating expectations of huge discounts in your market generate new loyal customers? Will the additional
contribution to cash-flow outweigh the costs of restoring prices to sustainable levels? And, given value is as much
based on perception as it is on cost realities, can your business really afford the medium to long term damage that may
be done to the brand/s you represent or worse still, to your own business brand?"
Dr Pickering is quick to add that he not against the practice of discounting.
"It's a sensible and effective tactic at particular times throughout the business cycle to bring people in the door," he
says, "such as moving end of line stock, 'seconds', and loss leaders. But unless, like the largest retailers, price
leadership is what the business is always about, it's unsustainable beyond the short term."
Dr Pickering adds there are always ways to make offerings appealing that don't involve giving away half the store or
devaluing the key brand. He suggests package deals, in-store promotions, competitions and joint activities with local or
related retailers.
But he believes Kiwi retailers miss the best business opportunity of all: to give customers outstanding service.
"Once a customer is on the premises, retailers need to get alongside them and make every effort to understand their
needs and make them feel important; they need to go beyond a customer's expectations. This will deliver more value than
a discount every time," he says.
"Remember to keep treating your customers like valued members of the family. If you do, then don't be surprised when
they choose to stick with you through the tough times."
Notes for editors:
Dr Paul Pickering is a Senior Lecturer in Marketing and Sales Management at the AUT Business School where he
co-developed AUT's Bachelor of Business degree Sales major.
For more information about Dr Paul Pickering, please go to:
www.aut.ac.nz/schools/business/business_research/marketing/paul_pickering.htm
For more information about the AUT Business School and its programmes, please visit: www.autuni.ac.nz
For more information about the AUT Business School Marketing Department and its researchers, please visit:
www.aut.ac.nz/schools/business/business_research/marketing
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