How Retailers Can End the Discounting Cycle

The results are in, and despite technical glitches, Amazon Prime Day proved even more successful for the company than last year, with worldwide orders rising 60 percent compared to 2015. Analysts estimated 1.5 million people signed up for Prime on July 12.

Retailers knew Amazon.com would put its marketing weight behind its own manufactured holiday and that consumers would be ready to shop when they perceived they could get good deals. And this year, retailers were prepared. They took a more planned approach to Prime Day, as they were now aware of the power of the promotion. While many retailers decidedly abstained from offers on Prime Day to avoid being drowned out by Amazon, others attempted to grab a piece of the “Christmas in July” attention, focusing on non-Prime consumers as well as Prime customers’ wallets while they were wide open.

Just as we saw retailers deeply discounting during the holiday season of 2015, we're seeing promotions continue to propagate in 2016. Beyond their response to Amazon Prime Day, the discounting addiction is a much more dangerous and ongoing phenomenon, for retailers and their stakeholders. The summer of 2016 may be remembered in retail circles as the year augmented reality took off with hordes of Pokemon Go players taking over Central Park, but it will also be remembered as the “Summer of Promotions.”

Summer of Promotions
Beginning with Memorial Day and peaking on the Fourth of July weekend, this summer’s retail promotional season has been constant. Retailers are pulling the promotional lever to offset dismal spring sales, which unfortunately continues the pattern of a mass of inventory being sold unprofitably.

Like Amazon, retailers are manufacturing a promotional calendar that flows straight from the Fourth of July through Amazon Prime Day and onward to Labor Day and back to school. According to our recent analysis of more than $5 billion in consumer transactions, summer 2016 is proving to not only be the “Summer of Promotions,” but more likely 2016 has evolved to become the “Year of Promotions.” Unfortunately for retailers, the next few months will show an ongoing run of sales and promotions, one beginning before the last one has a chance to end, that will continue to feed consumers’ expectations for discounted and promoted merchandise.

In fact, the percentage of orders using a promotion are up an average 76 percent in 2016 thus far, compared to results from January to July 2015. With consumers trained to wait for a sale and/or promotion, retailers are struggling to sell what they have in stock at full price. In fact, retailers sold less at full price during the week of Fourth of July, with a 9.5 percent drop in the number of units sold at full price, as compared to last year.

Stop Being Ruled by Promo Calendars
With retailers constantly offering promotions, are they truly getting their value’s worth and maintaining their bottom line? The answer is a resounding “no.”

Although retailers may be saving the individual sale with their promotion strategy, at the end of the day, they're finding it difficult to create a loyal customer base. Retailers are finding it hard to convert a first-time buyer into a second-time buyer, with the three-month average conversion down 8 percent thus far in 2016.

While promotions may seem like the best way to get customers in the door and product out the door, there are additional ways to beat the discounting cycle to truly deliver what customers desire. It all begins with the ability to accurately analyze data from all parts of the organization and act on it quickly. Only then can retailers be ready to act and react to create shopping experiences that are authentic for customers and profitable for the company.

Thriving retailers are those that understand their shoppers’ true motivations. Rather than attempting to grab their attention with constant free shipping offers or a “last hour to buy” message, successful retailers are looking at their cross-channel customer data to ascertain who their most profitable customers truly are and what's going to encourage them to buy now and buy repeatedly. Is it early and direct access to the newest product line? A personal shopping experience either in-store or online that helps the customer curate the perfect look for a big event?

The retailers avoiding this promotional trap are those that fully grasp the mind-set of their customer and continually look to their data for cues that allow them to shape the marketing messaging, inventory allocation, site interaction and in-store shopping experience.

Additionally, the top retailers are those that are truly optimizing inventory. There has been a seismic shift in conversation over the past year as it relates to what's core to success. Whereas a year ago, the “shiny new objects” were everything from the newest personalization engine to building yet another mobile app to virtual mirrors in-store, I hear more and more conversation at the senior retail level about getting back to the basics — discount less, better optimize inventory and provide a better customer experience in that process.

Are personalization, mobile and store innovations important? Certainly. But the ability to offer better experiences wherever a customer shops is only made possible with a solid foundation of understanding what to buy, selling what you have in stock and doing it at full price. Great retailers are returning to the roots of what made a merchant-customer relationship so special to begin with, yet on a mass scale and with the strength of data to solidify the relationship.

While Amazon Prime Day may have triggered retailers to add one more promotion to their already overwhelmed summer promotional calendars, the fact is that retailers that are going to succeed in 2016 and beyond are those that take pronounced action now to curb this pervasive discounting addiction. Before the holiday season arrives, take a hard look at your data. Can you connect it? Can you trust it? Do you know the actions to take quickly with it? Use that data and structure your organization to better understand your most valuable customers’ true needs, analyze demand patterns, buy smarter, merchandise more insightfully and regain control of your promotional calendar.

Sarah Engel is global senior vice president of marketing at DynamicAction, an analytics solution built specifically for retail merchandising teams.