Direct Selling : Get Off the Offer Bandwagon

Learn how to balance your promotion strategy

Think in terms of “richness” and “wealthiness.” If consumers feel wealthier (i.e., strong portfolio accounts), even if they are less rich (i.e., they have less disposable income due to, say, joblessness or higher gas prices), they tend to maintain or increase their existing levels of spending. Conversely, as consumers feel less wealthy, they spend less, despite available income.

To direct marketers, this is huge. Because direct buyers are often in the middle and upper-middle classes, these consumers are among the subset of Americans who make up a substantial portion of the U.S. stock holdings through their corporate-sponsored and personal retirement accounts. These are the consumers who have seen their portfolios sink in the past year. These are the consumers who feel the least wealthy right now. And these are the consumers who, in the face of decreasing wealth, are changing their spending habits in a big way.

It’s not that they aren’t buying; it’s that they’re buying differently. Here’s some proof.

• December 2008 same-store sales for Wal-Mart were up 4 percent, and annual sales topped $100 billion for the first time ever.
• November 2008 same-store sales for Dollar General were up 10 percent.
• Target and Macy’s each saw December same-store decreases of 4 percent, and Nordstrom’s year-over-year same-store December sales were down 8 percent.

Notice a pattern? Value is in. Not just low price, but value.

Offers Abound
What did direct marketers do to capitalize on the changing spending patterns? Eager to protect sales, they became discounters. They tried to jump on the offer bandwagon to get a piece of the action.

Offers this past holiday season and early in the new year abounded: from 20 percent to 75 percent off, shipping discounts and promotions. You could walk into a major retailer in January and find prices as low as they’d been at the peak holiday season in years past. News reports helped convince consumers—even established the expectation—that the retail season would be dismal, and those consumers showed up ready to save. At every turn, the American consumer was taught one thing: “Retailers are hurting worse than I am, and if I wait, I’ll get it cheap.” And for the most part, they were right.

So we’ve now spent several months training customers to expect us to slash prices and give it to them cheap. But now that the fourth quarter’s done, we’d rather not continue discounting. We’d like to get off the offer bandwagon. But how?

First, remember what an offer’s meant for. Rule No. 1: Offers are for solving problems or addressing opportunities in the database. They should be customer-centric and meant to exact a behavior from the customer based on a specific requirement. How many 50-percent-off offers were created because a marketing manager wanted to support a suffering economy and the American consumer? I can’t imagine many.

And by attempting to compete on the price issues (via dollars off, percents off, shipping discounts, etc.), most of these businesses have turned their backs on their existing brands, because most of these brands aren’t built on price competitiveness. The results can be severe and far-reaching.

Many of the customers attracted to a brand for reasons outside of the core brand promise (i.e., attracted because of the deal, not because of the brand’s essential emotional offering) are cherry-pickers and likely not to re-up with your company in the future—when you don’t want to give out offers anymore to everyone who comes to your site. You may be studying lower-than-average retention rates in the years to come if you employed ultra-aggressive offer strategies in late 2008 and early 2009.

Plan Ahead
Getting off the offer bandwagon is a matter of planning. First, as with all marketing issues, your offer strategy should be built up from the foundation of your brand. Understanding who you are to your customers, why they come to you and what you offer them that no other company does is the first step in building a successful offer strategy. Remember, consumers aren’t just looking for “cheap;” they’re looking for value. If you can wrap your products and services in a veil of value, you still can sell them without giving away the store. But your brand will dictate your value.

With the brand back at the forefront of your strategy, get back to basics in terms of defining why you’re putting offers into the marketplace. There should be a specific result you’re looking to obtain from your offers. Promotions for the sake of promotions are wasteful and damaging to your long-term success.

Develop offers that you and your bottom line can live with. Arguing that your competition is offering 25 percent off and therefore you should, too, as a way of building strategy is baseless. If your competition is starting with better margins than you, perhaps it can afford it. The point is, every dollar you give away in margin via dollars or percents off and various shipping discounts must be recovered in other areas of the income statement, or you’re likely increasing sales and decreasing profits with every transaction. Your promotion strategy must balance sales and profits, not produce cash flow at the expense of long-term success.

You can help your business by getting back to some of the basics of offer strategy and getting off the offer bandwagon to create more loyal customers and an improved bottom line. Just don’t turn your back on your brand in the pursuit of the quick sale.

Steve Trollinger is executive vice president of J. Schmid & Associates, Mission, Kan. You can reach him at stevet@jschmid.com.

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