Without a sound business model, discounts are a fleeting solution to maintaining customers and profit, according to Brian Rosen of Chicago-based consultant ROCO Partners. Rosen says until recently, discounting was used primarily to reduce inventory.
“Discounting wasn’t done for cash-flow needs. It wasn’t done for survival. It was only done to reduce inventory and make room for seasonal buys or other short-term kind of re-occurring changes. Now what’s happening is discounting is done as a way to raise cash flow, and really nothing more. So it’s no periodic, it’s not two weeks a year of sales. This is a week a month, this is every Saturday—that kind of re-occurring sales that are beginning to hurt retailers’ brand.”
And Rosen says discounting must be used sparingly to keep customers from automatically associating their brands or services with continual discounts. He recommends a better business model that offers exceptional client services and satisfaction level, and take price off the table.
“Make it about customer experience. Make it about service. Make it about selection. Make it about knowledgeable sales people. Those are things that can’t be easily duplicated. Those are things that separate you apart from other retailers. And those are things that take price off the table. That’s a battle retailers can win both big and small, and frankly, when you’re going up against the big-box retailers, those are advantages the smaller box has. Because you can’t win on price. There’s two retailers in America — there’s Walmart, and everyone else. You can’t compete against Walmart, so you have to play on a field that they’re not good at, and that would be selection, service and knowledge.”
Rosen says occasional promotions and increasing quality of the product and overall shopping experience will be more beneficial for retailers in the long run.