Discount Nation and the sucker price

When was the last time you went to Macy’s or Bed, Bath & Beyond or any furniture store and paid full-price?  Did you actually pay for shipping on any e-commerce purchases during the holiday?

At most retailers, regular price is the sucker price. You only pay it out of desperation or ignorance.

Walk through any mall and you are inundated with sales signs, with coupons and with triple rewards points.  Buy one sports coat at regular price and get a second one at half-off?  Yes, please.

One retailer–I’m looking at you Gap–even put their whole store on sales for several hours during the run up to Christmas.

It makes perfect sense that product gets marked down as the season draws to a close.  It makes sense that your best customers get rewarded for concentrating their share of wallet with you. And faced with an intensely competitive market, one must certainly be mindful of maintaining market share.

But at what price comes the glory of same-store sales growth?

For years we have been teaching consumers that there is no integrity in our pricing. We have become a “discount nation”, bribing the promiscuous shopper to choose us over the competition while needlessly giving away margin to potentially loyal and profitable customers.

I don’t believe for a second that we are going to see an end to rampant discounting and blanket promotions any time soon. After all, it was just a few weeks ago that Target announced a new credit card that offers a straight 5% off all purchases.

I do believe that companies that deliver truly compelling value propositions and experiences based on a deep understanding of customers needs, wants and long-term profitability will win over the long-term.   I do believe that the best brands–think Apple, Nordstrom and Coach–know how to drive their business at regular price.

Those brands do the work of customer-centricity.

Those other brands?  We know what you are.  All we are doing is negotiating.

 

 

Reset! Engaging Customers in the New Normal

If you missed the webinar that Jon Giegengack and I conducted earlier this week entitled Engaging Consumers and Growing Market Share in the “New Normal,” the recording of the session and presentation deck are now both available.

Webinar recording:

https://cmbinfoevents.webex.com/cmbinfoevents/lsr.php?AT=pb&SP=EC&rID=2764867&rKey=b264f15e93796eb1

Webinar deck:

http://www.cmbinfo.com/cmb-cms/wp-content/uploads/2010/10/The-New-Consumer-Report_2010.pdf

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Taking Pitches

In baseball we often see a batter “take a pitch.”  In other words, before the ball is thrown the batter decides he’s not going to swing regardless of how good the pitch is.  Sometimes this is a tactic to tire his competition–the pitcher–out.  Sometimes it’s an attempt to draw a walk because that’s the best the batter can hope for under the circumstances.  Sometimes it’s a strategy to wait things out, figuring a better opportunity will present itself later.

Lots of businesses take pitches.

When Sears allows discounters and category killers to erode their core customer base and chip away at their dominant market share, they are taking pitches.

When Blockbuster fails to mount a compelling response to NetFlix and Redbox, they are taking pitches.

When Neiman Marcus, Saks and Nordstrom allow flash-sales sites like Gilt and RueLaLa to build brands with significant market value, they are taking pitches.

When dozens of companies deny the future of social networking and location-based marketing, they are taking pitches.

Of course there are times when it makes sense to wait things out–to study and analyze before placing a big bet.    Customer-centric companies know who their most important customers and prospects are, and when the metrics on those customers deteriorate, they dig in to understand the drivers and take action.

You don’t always need to swing for the fences, but it’s hard to win without a few hits.

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Members only? Or “Members Only” jacket?

A powerful component of customer engagement is providing scarce, exclusive and relevant experiences that reinforce your brand positioning.

“Members Only” or “By Invitation Only” marketing programs can be compelling messages that tell your customer that you truly appreciate their business.   For years leading luxury retailers such as Bergdorf Goodman and Barney’s have feted their best customers with private lunches, exclusive parties or access to fashion designer “meet and greets.”  More accessible retailers like J. Crew and Nordstrom use their loyalty programs to reward members with unique privileges such as free alterations, early notice of new merchandise arrivals or special shopping hours.  In all cases, the customer is granted access based upon some meaningful qualification, typically spending level or loyalty.

But another kind of marketing seems to be gaining momentum, and it’s best illustrated by the flash-sales sites such as GiltGroupe, HauteLook and BeyondTheRack.  These businesses are growing dramatically–RueLaLa recently reported that their sales doubled year over year–and one of their hooks is that their low prices are for “members only.”   So what does one have to do to qualify to be a member?  Having a legitimate e-mail address is just about all it takes.

In the early 1980’s “Members Only” jackets quickly became all the rage.  If you wanted the world to know how cool you were, a “Members Only” jacket gave you quick access to an exclusive club.  But it wasn’t long before just about everybody had one and what propelled the brand soon eviscerated it.

There is ample evidence that, for a while, you can get away with hooking customers with faux exclusivity.  But just because you can, doesn’t mean you should.  Deep levels of engagement and loyalty are not built on smoke and mirrors; rather they are built on forging relationships rooted in respect and trust.

Authenticity matters.

Does your marketing look more Members Only or more “Members Only” Jacket?

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Surgical Shopping and the Hangover Market

Last holiday season I coined the term “surgical shopping” to describe the highly precise way many consumers were purchasing.  While the panic of late 2008 and early 2009 subsided, consumers were only gradually opening their wallets, focusing primarily on needs vs. wants and often trading down to brands that gave very clear bang for the buck.  By the time the numbers were in for the 4th quarter, it was clear that business was better, but not particularly good.

As an economic recovery struggles to gain traction, this “surgical shopping” behavior remains rampant, and in my opinion is not likely to change any time soon.

This behavior is evident on the lower end of the market, as private labels (or more accurately “private brands”) gain market share.  And it’s apparent on the higher end, as accessible luxury brands such as Coach, Nordstrom and J. Crew beat their more exclusive and expensive rivals.  Even at the absolute luxury tier, brands like Louis Vuitton, Gucci and Hermes outpace the competition as they emphasize their heritage of investment quality craftsmanship to win over flash in the pan, mostly pure image brands.

This is now the Hangover Market.  Waking from the intoxication of too much marketing and societal hooch, consumers are now shaking off the cobwebs and dry mouth of excessive, superficial spending.   And while it’s always difficult to predict future consumer behavior, many consumers are not going back to their old reckless spending habits.  For some, this will be out of economic necessity.  For others, this will be values based, as they become more discerning about the quantity of what they buy and the price they pay for certain items.

So what does this mean for business leaders and brand stewards?

Tangible, obvious value wins.

Craftsmanship wins.

Authentic wins.

Experience wins.

Connectedness wins.

Being remarkable wins.

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The Private Flash Sales Sites Jump the Shark

On April 19 I posted about my belief that the luxury off-price market was about to hit the wall, largely owing to a squeeze between a growing customer base seeking out great deals, and a diminishing supply of first quality branded merchandise.   I suggested that the various players in the space were going to have to evolve their winning formulas substantially to sustain their growth.

Well this seems to be playing out with the various high-end flash-sales sites (Gilt Groupe, RueLaLa, HauteLook, Ideeli and BeyondTheRack and the myriad wanna-bees).   In fact, what made these new concepts so great–and allowed them to gobble up market share–is rapidly being watered down.  Whether you call this “jumping the shark” or “nuking the fridge”, it’s a cause for concern.

All these companies have grown rapidly, attracting both legions of members and significant investment capital.  Their original value proposition was simple: offer well-known, high end brands at unbelievably low prices, and make them available in limited quantities during a short sale period.   This was an innovative re-imagining and up-scaling of QVC–or a blatant ripoff of Europe’s Vente Privee–depending on where you sit on the cynicism scale.  Regardless, during late 2008 and well into 2009, customers signed up in droves and feasted on high demand fashion brands at steep discounts.  Of course the rocket fuel during this time was the substantial amount of surplus inventory that both manufacturers and retailers were desperate to turn into cash.

A review of the flash-sale sites’ offerings today reveals quite a different story than even six months ago.

The first obvious thing is the paucity of true high demand luxury brands.  Tomorrow’s sale on RueLaLa features one true luxury brand (Pratesi), but also Andrew Marc, L. Spaace, Tailor Vintage and Cuddlestone.   BeyondTheRack has some Gucci, Prada and Robert Cavalli–though it’s sunglasses and wallets–not ready-to-wear or handbags.  The rest of their offering is Jonathan Marche, Ninety, SpyZone Exchange, CC Skye and Italgen.   Not exactly household names.  A check of Ideeli and Hautelook reveals the same smattering of brands you have heard of, while the rest is decidedly second tier or no-name.  Gilt Groupe, on the other hand, does seem to consistently have a much broader offering of true high end and fashion brands.

The second item of note is that the discounting is not nearly as extreme as last year.  And this is not surprising.  Last year, when manufacturers were stuck with mountains of unsold inventory, they were often willing to sell first quality product below their production cost.  Today, more and more product is not distressed, but rather made specifically to be sold in these channels; and that means the manufacturer needs a mark-up.  If your product acquisition cost goes up, the retail price goes up (i.e. the lower % discount to the consumer).

The other noteworthy change is the growing mix of product that is not fashion merchandise.  All these sites are starting to feature travel, wine and even bicycles.  On the one hand, this is a smart growth strategy: find more things to offer to your existing clientele.  For others, it smacks of desperation.

All this adds up to a model that, despite being barely two years old, is rapidly evolving and will likely look quite different by this time next year.  My guess is that by then several of these sites will be gone, bought out or struggling mightily, while a short list will leverage deep customer insight and new capabilities reinvent themselves and thrive.  Given that the big guys–Neiman Marcus, Saks and Nordstrom–have yet to do anything meaningful in this arena (and really why is it taking them so long?) we can only expect the competitive environment to become even more intense.

Any guesses on who will be standing tall versus who will become chum?
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“Faux Clearance”: Do Outlet Store Customers Care?

One of the hottest retail segments right now is the outlet or off-price market.  Nordstrom, Saks and Neiman Marcus are opening more “clearance” stores than full-line stores.  Bloomingdale’s and Lord & Taylor have recently announced plans to open their own off-price formats.  Hundreds of manufacturers’ outlet stores from Ralph Lauren to Coach to Nike can be found throughout the country.

As I have learned in recent conversations with everyone from neighbors to business reporters to industry analysts, very few customers realize that the vast majority of product in most of these stores is NOT manufacturers’ overstocks or unsold merchandise from the full-price retail stores, but is in fact produced specifically for these stores.  I call this “faux clearance.”

Certainly these stores benefit from the impression that the reason you are getting such a great deal is that they had too much merchandise and had to mark it down to move it.   Their promotional material trumpets 30%, 40% (up to 70%!!!!)  off to reinforce that notion, when in fact in most cases that identical product has never been available anywhere at the “manufacturer’s suggested retail” or “compare at” price.  Deceptive? You decide.

With the retail outlet segment exploding–and the dramatic growth of “flash-sales” sites like Gilt and Rue La La–the reality is that the percentage of directly made for the channel product will only continue to rise.

So if you buy my premise that most customers of these store and sites do not understand the origin of the product in these channels–and btw if anyone has seen good data on this send it my way–would knowing actually change their behavior?

My guess is no, and here’s why.   The players that have been really successful in this market–one great example is Nordstrom Rack–understand that the core customer for these formats is a different customer than their full-line stores and have built the business model accordingly.  This is why Nordstrom can build a Rack store across the street or down the way from their full-line store and still thrive.  This is why we decided to accelerate the growth of our Last Call stores at Neiman Marcus and began work on a new concept.

The challenge going forward will be to consistently execute a compelling value proposition–and that means delivering an experience that complements the parent brand without diluting it and reliably offering great value in the product assortment.  This latter factor is not so easy, particularly as the demands of this channel increase dramatically.

But ultimately if these formats offer compelling price value in their assortments and a great customer experience, why should the customer care exactly why the product is being offered for sale?

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