This Just In: Holiday Retailers Lose Their Minds

If the definition of insanity is doing the same thing over and over again expecting different results, then holiday retailers are raving mad. According to Reuters, “Heavy discounting took a toll on U.S. retail sales during the Thanksgiving weekend as shoppers spent almost 3 percent less than they did a year earlier…”

Some might point to Cyber Monday’s impressive increase in online sales as proof that discounting still works, or even argue, as Forrester analyst Sucharita Mulpuru did in an Adage article, that “the big story is that stores continue to lose share and web retailers continue to gain share.”

But that only captures part of the story.

While online sales increased, overall sales for the weekend significantly sagged, even as more shoppers flooded stores than ever before. The big story is that the insanity of Black Friday was finally exposed this year as we watched retailers desperately dump deeper and earlier discounts on consumers to no avail.

In essence, we are seeing the logical result of hyper-discounting. Although more people are shopping, they have lost the urgency that discounting traditionally provides because they know that the deals will extend longer and in more places than before. Why buy now when I can visit another retailer or check online and get a similar or better deal tomorrow?

It’s like watching a group of college students dare each other to eat a basketful of double fried nuclear hot wings. Did anyone really think this annual discount frenzy would end well?

Nobody Wins When Consumers Don’t Care
Discounts, by their very nature, focus the consumer on price. Instead of promoting the benefit of a product, discounting teaches the consumer that price is the only thing that matters, resulting in mass commoditization, squeezed margins and a winless race to the bottom.

Steve McKee writes in Business Week that discounting tends to “attract price-driven shoppers who are likely to have zero brand loyalty. That might sell a razor-thin-margin TV today, but won’t build equity for tomorrow.”

Holiday retailers have chosen to wield a double-edged sword, essentially playing a massive game of corporate keeping up with the Joneses. In their effort to out-do the competition and meet quarterly numbers, retailers deepen discounts every year. But by doing so, they simultaneously attract disloyal consumers and cheapen their brand for current customers.

When an entire industry follows suit, the result is that consumers don’t care about your brand. Instead, they have been taught to simply search for the best deal. And nobody wins that game in the long run.

A Better Way
While retailers are likely mourning this weekend’s disappointing sales, I prefer to look at it as the best bad news of the season. This should serve as a wake-up call to an entire industry.

Discounting is easy. It requires no creativity or patience. And it sacrifices long-term success, margins, and customer loyalty for short-term gain.

I’m not saying discounting is never appropriate, but as we saw over Thanksgiving weekend, there is a limit to its effectiveness.

As retailers lick their wounds after the holiday season and begin post-mortem meetings, the wisest among them will avoid futile conversation around how to discount more effectively next year, and instead ask more fundamental questions, such as:

• Is holiday discounting losing its effectiveness?
• How can we first add value before dropping the price?
• As the entire retail industry zigs with discounts, how can we zag with something more?
• How can we attract and retain customers who value the brand, not just a deal?
• As our competition further invades the Thanksgiving holiday, do we have an opportunity to stand for something more?
• And the most terrifying of all: Deep down, do consumers value our brand without discounts?

As you consider your plans for the upcoming year, are you doing the same things expecting different results? Or are you willing to ask the hard questions that might lead to a saner tomorrow?