Brands are dying, Long Live discounts !

Cherry picking behaviour of Indian Consumers-How brands are being endangered by heavy discounting

The flavour of the season, nay the flavour of the year in India is heavy discounting. If you look at online retail, there are deep discounts being offered on goods and services. If you look at Modern Retail Stores- they indulge in full page advertising in newspapers with details of item-wise discounts to entice consumers to descend in hordes, often stretching their fragile systems and processes to points of near breakdown. There is a mob mentality which has clouded the thinking of even the most rational and astute of retail strategists in the country: If there is no “sale” there is no “sell”- that seems to be the morale of the story.

Studies have shown that heavy discounts not only lead to cultivation of cherry picking behaviour among consumers, but also lead to brand dilution. When consumers are trained to cherry pick, they lose the loyalty that they otherwise have towards the brands. It is therefore very important for brand managers to have a long term strategy towards discounting, rather than resorting to short term gimmicks which result in a one-time spike in sales and also in heavy switching behaviour among consumers.

I will give an example to prove my point. My wife and I visit a certain Modern Retail store in our vicinity where there is a promotion running on some basmati rice or the other, on a daily basis. Now, given that there are around 8-10 popular mainstream brands of basmati rice which have almost the same quality (I can vouch for that as I have consumed most of them by now) that are always on discount, it is a natural instinct on our part to buy the one which affords the best value for money. Now among these brands, there is a brand which we used to like and regularly bought, before this circus of discounting started. But, ever since then, we have not bought this particular brand even once out of brand loyalty (and if I look at our basket over a six-month period, it has found its way into our basket only once, and that too when it was on promotion). This proves a very pertinent point; that a hap-hazard, short term promotional policy is hurting the brand. We are no longer inclined to pick up this brand as it doesn’t afford us a discount which is competitive. We have been trained to pick basmati rice on discount only!

Now what we have stated above is a problem. Is there a solution at hand? Well, the resounding answer to that is a big “YES”.

What brands need to do is to embark on a long term strategy for promotion, where they help consumers save money by giving them regular offers over a sustained period of time and at a personalized level, so that a loyal consumer knows that he has an exclusive offer for himself, which is the reward that the brand is bestowing upon him for staying loyal to the brand.

How does a brand identify a loyal customer? This is where partnership with retailers is very important as retailers would have information regarding customers and what they buy. Having information on customers and what they buy is of no use, if it is not acted upon. The vacuum that exists in the Indian market today is not the absence of fancied Loyalty Programs, but the absence of well designed Analytics based Loyalty strategies that can be used to use the loyalty programs effectively. The other important medium which is missing is a communication channel. Not many retailers in India seem to have heard or read about Tesco Club Cards and how a now legendary personality called Sir Terry Leahy, made the most important decision ever in his life to invite a little known company called Dunnhumby, to embed Analytics and the ethos of a customer first philosophy, which changed the course of Retail History forever, turning Tesco from a unfashionable home grown super market chain to a global retail powerhouse. The irony is that some people would have read and heard about Tesco Club Cards which is why we have these slew of Loyalty Programs run by retailers in the country, but not gone deep and understood the science behind how Club Cards was used to understand customers and build customer loyalty towards Tesco.

The India Retail Industry, or more specifically Modern Retail, needs to take that leap of faith and embark on a journey to build customer loyalty towards themselves and also towards the brands that they sell, on behalf of the manufacturers. The Indian Manufacturers and brand owners in turn, need to demand this of the retailers and on their part, also help the retailers on this journey by investing generously in building customer loyalty, by espousing the cause of targeted and personalized promotions on a sustained and long term basis. This will help stem the present rot of large scale and mindless discounting, which is hurting the brands and also the customers.

There is an interesting concept in Marketing Sciences called Market Structures (and I have had the good fortune of working closely with the only surviving founder of Hendry Market Structures) which uses data on switching behaviour of customers to come up with (amongst many other important solutions) a hierarchy/tree containing the attributes of a product which help a consumer determine which product they would buy when they visit a store/make a purchasing decision. For example, when a consumer buys an ice-cream, what is the first thing that plays on in the mind of a consumer- is it the flavour, is it the brand, is it the manufacturer that is his first decision making point in the tree? For most products, it has been seen that either the Brand or the Manufacturer, or the category is at the top of the Market Structure, with other product attributes following at a later stage in the decision making process (whether to buy a pack of 6 ice creams or a pack of 2 ice-creams comes into your mind much later-after you have decided on a chocolate flavour and chosen a Kwality-Walls over a Mother Diary or vice versa). My fear is that for the Indian Market, if we were to do a Market structure study across products and categories – neither the brand nor the manufacturer will feature on the top of the decision making tree in the minds of a consumer for a majority of them. This should ring true alarm bells for the brand managers and the manufacturers, as after all, crores of Rupees are spend on advertising and promotions, with the ultimate objective of strengthening those very brands, which are now being diluted through discounting. Market Structure is a very powerful tool in the hands of brand owners and manufacturers and allows them to understand how products best compete with each other and where opportunities for new products exist; my apologies to all the learned students and teachers of this science for oversimplifying the concept for my example above.

I forgot to mention that I would still love to buy that brand of basmati rice – the brand should take note before it is too late.

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