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"Desperation Marketing"

By Marc Tracy

That's the New York Times's word in a recent article for what characterizes the retail era in which we find ourselves. Forget concerns about a severely under-average holiday season, in which the worry was not that no one would buy but just that fewer would than usual; that's so, well, last month. (And which proved prescient, even for Walmart.) The fears now are of a total meltdown.

And so in response, forget mere coupons, which we wrote about a month ago; retailers, in their desperation, are getting extremely creative. Pharmacies-giving-out-free-antibiotics creative. After all, as the paper of record puts it, "Sales of 50 percent off stopped capturing the attention of customers weeks ago." Yes, mere sales, too, are so last month.

Where do small businesses fit into this? As we've argued before, when the going gets tough, the tough get creative; and creativity--demanding, as it does, near-infinite flexibility--can be a small business's avenue for trumping its big-box competition.

The Times argues that the desperation at this point has at least as much to do with a need to clear out current winter inventory as a desire to boost revenue, much less the bottom line. In fact, concerns about profit itself have nearly gone out the window, as, after all, purveyors of "buy one/get two" deals--yes, you read that right--and 90%-off Playstations aren't exactly making any money. Such bargains, represent loss leaders. Vendors are willing to strike these deals in order to help liquidate inventory ('tis better to have sold and lost money than never to have sold at all) and, if they're lucky, to coax customers in and maybe--just maybe--get them to buy one of the few items left that actually are being sold with a profit margin attached.

So why all the creative deals? Why not just slap a discount on everything? The answer is marketing. The paper talked to Duke behavioral economist Dan Ariely, who pointed out that consumers are more drawn by such exotic arrangements than simple mark-downs. Hence, three suits for the price of one (at Jos. A. Bank) rather than all suits 67% off. Hence, a free scooter with your new pick-up at a California Ford dealer rather than subtracting the cost of the scooter from the price.

Amid all the discounting--for from the business's perspective, that is what all of these deals are--is the sense of trying to balance your, well, balance sheet so that prices are low enough to undersell your competition but not so low as to drive you out of business. Because finally, during this time of flux and instability, you are also looking to pick up market share, so that when things do get better--and, yes, they will--you are amply positioned to make up what you're probably losing right now.

Comments (1)

January 8, 2009 2:30 PM

Comments (1)

Jurgen Wolff:

Unfortunately there have also been enough bogus "discounts" that customers are getting cycnical--is that price really 50% off the most recent price, or 50% off some price that was listed for one day? That's another reason why more creative deals are more appealing.

Posted by Jurgen Wolff | January 9, 2009 11:18 AM

Posted on January 9, 2009 11:18