What can Amazon Prime Day teach us about promotions?
Retailers wince every time Amazon has a sale.
Already struggling with margins, they have to watch as along comes Amazon to re-educate the market on all sorts of products (but primarily electronics).
As more and more price-sensitive products move online, there’s no answer to Amazon’s approach.
But there is something to be learned from Amazon Prime Day.
This massive 24-hour promotion reminds us there was once a time when retailers did not run promotions throughout the year. Instead, they only had two or three sales, and made them special – exciting, even.
Now, not only has the consumer come to expect a deal every time they shop, but has gone past that to the point where they actively resist the siren call of promotions.
Or worse – as a recent report in Retail Week shows, consumers are increasingly disappointed by sales because they cannot find the sizes they want, or end up buying something that is not quite right, and end up returning it.
Or they simply delay their purchase until a discount is available, and end up buying solely on price – which completely negates all the effort the retailer has put into their brand, product, and any concept of profitable price perception.
In a highly-competitive sector, in which success is dependent on being able to differentiate on things like product, quality, service and access, this is pretty depressing news.
If the key differentiators don’t count because the consumer is simply buying on price – or worse, only buying at the lowest price – then there’s little hope for those retailers not in the low-price business.
Sainsbury’s, Primark and others are doing fine, which is very much down to their slavish devotion to low price. They can then surprise and delight on quality and choice, within a comfortable consumer price proposition. Of course, there are plenty of other mid-market fashion retailers that trade on everyday low prices through promotion, but this approach is only really sustainable for a few.
The worry is that those retailers that have been too focused on price and promotions will lose sight of what makes them unique in their market – their product, quality, service, etc. Once those areas are broken, no amount of discounting will save them.
The answer is to find the price the consumer will pay, based on understanding what they want.
It sounds easy – but most demand is currently driven by supply, because of fashion retailers’ total devotion to the product. And that’s both a strength and a weakness.
If retailers could set prices based on better predictions, they would sell more at full price, and, once that process is automated, they’d be free to focus on the bits they like, and are good at – designing and making product.