Today when we go to any Mall or Shop, 1st thing which we check is whether there is some sale going on or not…From last year or so i am observing that Sale is now a permanent affair throughout the year across all retail outlets…SALE is most potent tool used by Markeeters to attact customer and survive in business but what is the real truth behind SALE?…Though buying from SALE gives us mental satisfaction that we got good discount….But we fail to check, whether we are getting real discounts or customer is being fooled. Some years back during my college days i remember, we used to wait for period from July-September when most of the showrooms put stock on Discount SALE…As I understand there were 3 reasons for Sale during this period
1. It’s a monsoon period, Overall Sales were low during this period across segments..Most of the people don’t prefer to buy new things during this period especially during inauspicious period of Shraddh so in order to attract customers and boost up sales; a SALE was put on store items to increase footfalls
2. Stock Clearance before festival season: In India Festival season starts from Oct and in order to clear old stock and put up fresh stock before festival season, Retailers used to offer discount Sale.
3. All the 2nds products of company were put on sale. Just to add 2nds product are one which were rejected due to some defect in quality during manufacturing and are available at very heavy discounts…Just to add most of the company showrooms sell 2nds product only becoz of which customers get heavy discounts throughout the year.
Conclusion is real discounts were offered some years back and it was good bargain for customer but today you cannot find out whether u r getting real discounts or not…Now you must be wondering what has changed now…Answer is, the complete modus operandi behind the concept of SALE has changed…Retail Marketing is all about creating impression and changing perception…We will understand the same, how the retailers have done this successfully…Lets understand following 2 scenarios..In Scenario A no real discount is being offered and in Scenario B real discount is being offered but on stuff which cannot be sold by company at market price.
Scenario A: No real discounts offered…Strategy of creating impression and changing perception
Now before proceeding further, would like to share an incident which happened with me in Navi Mumbai…I was planning to buy a jeans and I visited one of the very famous retail store located in Centre One Mall in Vashi…As I got late from office so store was about to close…I finalized a jeans costing Rs 1499/= but unfortunately, store executive requested me that I can come tomorrow and buy the same..As I would like to try the same before purchase so I thought I will come next day, purchase the same after try…He also informed me that from next day a SALE will be there on all products in store…I identified the jeans and remembered its location….Next day I again visited the store and rushed to grab the jeans finalized by me…Finally I was able to locate the same and was shocked to see that Price tag on jeans is changed to 2999/= and now there is 50% discount due to SALE…I visited store manager and told him that same jeans was available for 1499/= yesterday and today just for the sake of sale u have put a tag of 2999/= and offering 50% off…Why are u fooling around with customer, he tried to justify me that I would have selected some other jeans & I am mistaken & so on…So conclusion is self-explanatory…Thus Retailer is creating an impression that product is premium and then creating perception in the mind of customer that he is getting premium stuff at much cheaper rate through discounts under SALE but there is no real discount being offered in whole bargain…My simple question is why one of most premium brands is selling shirts worth 10k for 2k i.e. offering discount of 80%…Are they incurring loss, I have answered in Scenario A.
Its not the case that real discounts are not offered by Retailers…to conclude logically, lets understand Scenario B.
Scenario B: Real Discounts being offered …Strategy followed is Lower the Demand, Lower the Price
Suppose a shirt is available in any store for 2000 Rs and if store is selling the same @ 1000Rs by offering 50% discount, The store owner fool or is he under cutting the cost & selling at Loss…The answer is big NO.
Reason is very simple, He or she is not being able to sell the shirt at Rs 2000/= under normal scenario and also by applying trick mentioned in Scenario A i.e. increase tag price to 3k and offering 33% discount..
Let me explain how it works…It all depends on logistics of goods and also very high margins associated with almost all products…I am just taking example of Garments for sake of simplicity..Whenever any company come out with a fresh stock and designs, they are being 1st shipped to all BIG Metro cities i.e. Mumbai, Delhi, Bangalore etc becoz of high purchasing power.. Assuming cost of shirt is 300 Rs (Its even lower then this becoz of manufacturing efficiencies)…The premium on cost depends on the premium a Brand can command, On same shirt if u put tag of Peter England then price will be different and if u put Van Heusen tag then its differently priced…
Now the shirt will be priced around 2000 Rs as its high margin product and will be put on display in Showroom of famous brand..If it is sold then its well & good but in case No then after some time it is put on SALE with price tag of 2500 Rs & discount of 20%…
In case still it is not sold @ Rs 2k, then real discount of 300-400 Rs will be offered….Even after this, if it is not sold in Metro Cities then it is shipped to Class A cities basically state capitals or other industrial town and is priced at 1400 Rs….The same cycle is repeated as mentioned above for Metro Cities and unfortunately if stock remains unsold then it will move to Class B cities with tag of 700-800 Rs…Even if it is discounted in Class B cities and sold @ 600 Rs then also Manufacturer is not at loss…The entire operational efficiency is achieved from Manufacturing and Logistics efficiencies..
In actual terms the real strength of manufacturer or Brand is tested from the fact that how much stock it is able to sell in Metro and Class A cities i.e. % of sales coming from Metro, Class A or Class B….Higher the sales from Metro, higher the profit margins…Becoz purchasing power decrease as stock move from Metro to Class A and so on…Therefore u will always find clothes of same brand cheaper in smaller towns compared to Class A cities…
Hope now we know why companies spend huge amount on Brand Building exercise in Big Cities..Reason is Stronger & premium the Brand, Higher is pricing power for manufacturer i.e. it can price the product high becoz of Natural pull from customer towards brand/product in the Market…
Another advantage is, retailers also demand less margins for products with strong pull or high demand i.e. Brands with strong recall among customers…..
At the end of the day, entire universe shrink to 1 word “Brand” i.e. How strong is ur brand in the market, which eventually decides premium u can command by creating Brand Pull and Brand Pull will decide how much stock u can sell in big cities, which increases profit margin..So it’s a cyclic process of Investment & Return.
In the end only customer is at LOSS
Copyright © 2011-2012 Nitin Bhatia. All Rights Reserved.