Discount culture: Boon or bane for retailers?

Who isn’t a sucker for discounts? Customers today are spoiled for choice and channels, understand their importance and value in the retail chain, and are more aware and knowledgeable of what they want to buy and how they want to buy.

What this does is, it puts absolute control in the hands of the customers, and why not? A retailer’s priority must (if it wasn’t already) always be its customers and now, more than ever, they have not just come to realise that the customers can’t be taken for granted, but also the importance of empathizing with them by putting themselves in the customer’s shoes.

But empathy must be a two-way street, right? If retailers are willing to work tirelessly to understand each customer and tailor their offerings to them, customers too need to understand the plight of the retailers who are healing from a very difficult year. This means they are not in a position now to offer the massive discounts and bundles they could once afford while reducing their margins.

The discount culture that is prevalent in the region can most certainly be a boon for brands and retailers as traditionally it has attracted more customers, increased conversions and even increased sales and margins. However, the premise has proven to be toxic when spiraled out of control. And one of the reasons it tends to spiral out of control is when group buying and daily deals sites intervene.

The GCC has a fair share of e-commerce sites, apps, booklets, and social pages that offer deep discounts for a range of services including dining, adventure sports, hospitality and other recreational activities.

Launched in July 2010 in Dubai, Cobone is one of the biggest ‘daily deals’ or group buying sites in the Middle East. In just 5 years, it had over 2.6 million Cobone vouchers bought and claimed to save its users over $172 million. Groupon, which is headquartered in Chicago, and has a strong presence in the Middle East, has enabled its North American consumers to save more than $35 million since 2008.

Now, these platforms provide great brand exposure, the opportunity to move inventory and even generate incremental income. Then why are the retailers today dissatisfied with their generous services?
Lina Malas, Managing Director of Aventura Parks, is an experiential retailer who isn’t a fan of the deep discounts that blanket deal providers give.

“There are some discount schemes that are more limited than others. With the Entertainer you need to buy the booklet and be a part of that group. Groupon is widespread to everyone and what we found is the wider spread ones can dilute your brand,” she said.

“It’s great for when you are starting up and great for when you are building awareness in the market. But I feel that although customers are looking for discounts, they don’t need discounts as deep as what some of them offer,” she added.

If you go on a Groupon or Cobone site, people are served with incredible deals on an array of services, which can be very difficult to look away from. But what is their business model, which enables them to give such deals?
“They basically take 50% of each sale, give 30% to the customers and 20% goes to them. We have to pay out a lot to buy that consumer. When there is an automatic 30% that anybody can get, it prevents us from our own flexibility as it blocks us from giving anything less than 30%,” she said.

Customers today aren’t just smart, they are also demanding. When they know that they can get better rates for the same product through another platform, there is no reason for them to settle otherwise. Hence, the discounts and schemes that the retailer wants to organically come up with lose their significance.

“It paralyzes us as a business from offering our own discounts. We have tremendous partnerships with kid’s apps and DMC’s and with Groupon, it paralyses us. The consumer asks us why we don’t give them the Groupon rates. In order to be more flexible in the market and give the customers what we want, is a balancing act,” she stated.
The retailer no longer has control over customer acquisition as they don’t know where its customers are coming from. This is a lost opportunity at relationship and loyalty building. They can’t enjoy the freedom of being flexible with their schemes and their partners also suffer in the process.

“When you are dealing with groups and different entities that want to collaborate with you and use their marketing engines to promote you, they are faced with the same problem. Also, when consumers hear about us, we don’t really know where they heard about us. So Groupon isn’t serving its purpose of building awareness,” she added.
Donna Benton, the founder of The Entertainer app who has now switched sides and become a retailer by recently launching her own luxury swimwear brand Caha Capo is in a position to share balanced opinions from both perspectives.
“With the Entertainer, we incentivised people to go to dine or theme parks. However, people who got discounts in that space ended up spending more at the restaurant or venue. So that was what our research with the F&B owners showed. Our job was to get them in the door,” she said explaining that it was a win-win situation for customers as well as retailers.

However, she believes that customers should also be empathetic towards retailers and brands and not expect discounts for quality items as the principle remains ‘you get what you pay for’.
“As a retailer with discounts, I think the price needs to be fair. And the consumer also needs to understand that. They can’t keep getting discounts and paying cheap for quality products. So you have to pay for what you get,” she said.
“You have to be smart as a retailer. You never discount your core products but you would discount some of your distressed products that aren’t moving. You have to believe in your products,” she concluded.