The practice of discounting may be as old as retail itself, but never before have brands and retailers have relied upon it so heavily to move unsold inventory. Discounting costs retailers an estimated $300 billion per year. What’s more, the pace of discounting is picking up speed: discounts on current season products have grown significantly over the past few years, before beginning to factor in the effects of the coronavirus pandemic. Already, this year’s holiday discounts have started much earlier and gone much deeper than in previous years, with Black Friday sales starting as early as October and discounts starting as high as 50%.
No new fashion brand starting from scratch would set out to sell so many products at so deep a discount. So how did we get here?
Several factors, including the globalisation of the fashion supply chain and competition for newness, have converged over the past several years to incentivise brands to produce much more than they know they can sell through at full price in a season. But all of this discounting has gotten very expensive, and what’s more, it’s destructive to brands’ images.
The good news is that there are steps brands can take to take back control, stop the cycle of more, earlier, and deeper discounts, and start increasing sell through at full price.
Site-wide discounts may drive traffic, but they can erode your brand in the long run. Applying targeted discounts to specific products and using those as a draw can achieve the objective of driving traffic to your site without giving away so much.
Likewise, consider the depth and timing of your discounts. Frequent, deep discounts will train your customers to never want to pay full price for your products.
A mismatch between your assortment and what your customers want to buy is a sure path to leftover inventory and more discounting. Get a better handle on your customers’ specific preferences, and you can produce more of the items they want to buy and fewer of the items they don’t.
Even better, talking to your customers and understanding their preferences on an SKU level enables you to have more confidence not only in your overall assortment, but also in your buy depths. If you also measure preferences by size and location, you can get that much more precise.
While understanding your customers’ SKU-level preferences can help you plan your assortment with greater precision and confidence, measuring their price sensitivity can help you get your prices exactly right. This is another lever for increasing your sell through at full price. Pricing your range at the prices you know your customers are willing to pay means that they won’t feel as compelled to wait for discounts to kick in.
Price sensitivity testing also often reveals the missed upside opportunities: products for which your target customers are actually willing to pay even more than you might have thought.
It may never be possible to eliminate discounts completely, but some tweaks to a brand’s discounting strategy and an investment in better consumer insights can help ensure that discounting is less costly. The best part is that getting a better handle on what customers want and how much they want to pay not only helps to reduce discounting; it also helps brands to produce less waste, enabling them to become more sustainable.
