05 February, 2010

Coffee Conversations...

It’s been almost a year since I started writing this column – recording my own observations about the Retail Industry as well as analyzing and interpreting decisions and actions of Retailers and their activities. I must admit that I have acquired a lot of admirers and a few critics on the way – not on a personal note but more on a professional stance. To make your reading more interesting, I am introducing a new column titled “Coffee Conversations”. In this section, I seek answers for queries that I have from Industry experts and stalwarts, while also discussing my own thoughts about the same. This is not mainline journalism – and I am not a journalist. Nor are those who opine spokespersons of their respective organizations. They are mere professionals who share their thoughts on certain specific topics.

The next column is about the recent advertising marathon by Retailers and Brands – and the recent occasion being India’s Republic day that is celebrated every year on the 26th of January. Almost every brand/retailer have been showering discounts – from 10% - even 60% in some cases on a range of products including apparel, accessories, electronics, household items, etc. The only category missing conspicuously is Automobiles – probably they are happy counting their bucks, thanks to very good sales over the past three months. But this Discounting phenomenon brings some thoughts to my mind – what happens to the Brand‘s Equity in the long run?

I spoke to my good friend Raman Kalia, an Advertising and Marketing professional with varied experience across consumer brands and services who now leads the Marketing division for one of the best managed Airports in India. Excerpts from the conversations that we had recently over coffee:

Shriram (SS): So, Raman, did you see all the nice ads overt the past few days on leading national newspapers inviting shoppers to buy products on discounts? Which was the one that attracted you the most and why?

Raman Kalia (RK): In this season, it is not possible not to see discount and promotional advertising from brands across categories. The season in a way has become synonymous with discounts, so I did notice advertising from apparel brands, electronics brands to host of others categories. There is no specific campaign that stood out in the clutter because these were plain announcement ads with each brand trying to outshout the other but even with these one, even if one tries, not notice the larger formats and in your face advertising. So I did notice Big Bazaar, Croma and some apparel brands advertising, but the bigger question is what I remembered beyond the fact discounts were on - Answer is nothing.

SS: Do you think most consumers tend to shop more when they find words such as “Sale”, “Best Deals”, “Save”, etc.? If so, then why?

RK: It is no secret that Indian consumer is a value consumer and with discount seasons getting well established, purchase cycles are getting aligned to these seasons. It is more important for brands to consider with such seasons - are people spending more or actually less? On the surface, it might give an impression that people are spending more in that particular week, month or season but if a planned or need based purchase is getting aligned to that season, then probably brands are earning less, not more. Against this, if brands are able to build impulses, which are true in certain categories, say electronics or apparel, and expand their base of users, it can be said that consumers have shopped more. Brands should not look at just the season to base their assumptions but look at the full year to make a judgment whether discounts or sales or best deals have added value to their business or not.

SS: In the long run, do you think these brands/retailers would lose their significance? Would consumers shop only when there are deals?

RK: But of course brands/retailers would lose revenue and equity if consumers start buying during season. To take an example, if the MRP of a product is100 and offers a 20% seasonal discount year after year and the bulk of consumers start buying during that time, they are telling the brand we value at 80 and no longer 100, that means its premium has eroded in the consumer’s mind. The prime example of this is Benetton; you would rarely find people buying this, one of the most respectable and recognized all over the world brand, at full price in India any longer. It has become a discount brand, with weak associated imagery.

SS: What about the Brand Equity? Do you think consumers would value the brand as much at a later date when they shop again in full price?

RK: There is no single answer to this question; it depends from category to category. In certain cases it actually enhances the value of the brand because it offers a chance to experience or enter the category. Every brand has three set of consumers – core buyers, fringe buyers and non-buyers. As long as discounts do not isolate or create dissonance in core buyers and at the same time give an opportunity and a reason to fringe buyers/non-buyers such schemes add value.

SS: Which categories according to you think have the least effect on their value? Can you elaborate with some examples?

RK: Discounts, at the end of the day in a way mark the end of something and are a symbol of change, a precursor before the new comes. And in certain cases clearly demarcated time fragments which are well established. Let me explain this by picking up three categories; technology, apparel and hotels.

Let’s start with the simplest one, hotels, you have season and non-season. Discounts and offers during non-season do not impact the rates that hotels charge during the season, why one because people travel less during that time, but it gives a chance to fringe or non-buyer to enjoy that exclusive experience. Even if a core consumer avails the opportunity it still does not erode the value because overall reason of a season is well differentiated from the non-season. Different opportunities, different reason, no dissonance, yet at the same time adds value to the brand in terms of revenue, consumer base and building brand equity.

In case of technology, it is an ever evolving category and every new launch makes the previous obsolete. So when an Apple discounts Nano after the launch of Nano with camera, buyer who has bought Nano at full price also understands that earlier price was an opportunity cost, without impacting the brand equity. Same is true for cars, when a new launch happens, say i-10 vs Santro from Hyundai and Hyundai offers Santro at a discount, it need not kill the demand of i-10. Some value conscious consumers might buy Santro instead of i-10 but in their mind the trade off of price and technology is clear. It does not devalue the brand.

Apparel is far trickier to answer. Fashion is always about change, and in a way reflection of the consumer. Now if new range is distinctive from the old discounts it would not erode the equity but unfortunately it is not true every time. Some brands and their products are so generic that it is impossible to differentiate the two and that’s where the issue comes. Now change could be color, cut, shade, design anything but in apparel a majority of Indian brands have not been to establish that and even otherwise a majority of Indians are not fashion conscious, hence erosion of brand equity with established seasonal discounts gets eroded rapidly.

Bottom-line is, discounts work for brands only when the reason of discount is well established and consumers can answer the brand is offering a discount because of a well defined and well understood reason. Trade off between new and old is when discounts do not impact brand equity, if that difference is not established it leads to dilution of brand equity and loss of margins. And the market is strewn with such examples where brands have not been able to achieve this; white goods, apparel, fashion accessories, footwear and zillion more – and today are victims of “I will buy during the discount season” mentality.

Brands should offer discounts only when-

1. Such schemes will not create dissonance in core buyers or change their buying behavior

2. Reason of discount is well established and trade off is understood

3. It marks the end of something

4. There is marked difference that segregates the old from the new, which is felt by the buyer either in perception or by any of the five senses.

SS: Last words of wisdom for Retail Marketing Managers?

RK: There are no simple or easy answers.

Thank you Raman, and wish you all the best for your upcoming Shopping Festival.

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