The Gray Hair Speaketh

GroupOn, Living Social, Snap Deal etc. – Is Deep Discounting the last resort of the failed salesman?!

For those who follow this blog, it is no secret that Group Buying, especially in the shape that it has taken in recent months, is my favorite whipping boy!!

I attended a talk by Prof. Nirmalya Kumar a couple of weeks back, and he was talking about how CMOs and CEOs need to worry not just about the short term, but also about the long term. He gave an example about how Coke could get away with absolutely no marketing spend for a year, and it may not impact its sales for the year. And yet, what does it do for Coke, in the longer term?

So a CEO / CMO has to take into account not just the next quarter’s results, but also the long legacy of the brand!

So what happens when such brands get lured by the GroupOns and the SnapDeals of the world? When a brand starts selling for 10% of its price, or even 50% of its price, no matter what justification marketers give internally to justify these moves, there are two consequences in the eyes of the consumer:

– that if they can sell for 10% of the price, they have been taking 90% too much from us, all these years!

– that I will wait for these discounts, and not buy at the full price at all!

Is this doing good for a brand?

Yes, the justification is that, instead of putting expensive advertising, I divert those marketing dollars into deep discounts, and get people to buy. To experience my product. And get a better and immediately measurable ROI on my “marketing” money! Sounds like a perfect plan, something that the CFO may like for the short term.

But who carries the responsibility for the brand, in the long term??

The moves would have been fine, during recessionary times. When you have capacity and the consumer offtake has reduced drastically. And you still want to keep your factories busy. At that time, a deep discount strategy is good.

But in India, at this time, it is a booming economy. Brands who are getting their act half right have cash registering ringing away to glory, and those who are doing better, are putting up new factories to cope with the demands!

In such times, who wants to sell cheap? Who wants to give those deep, deep discounts?

Only those who have no means to sell it right. Yes, I think that Deep Discounts are the last resort for the failed salesmen! When they can do no better, they discount. Well, if you give it away for free, you are sure to “sell” well (I heard an interesting rejoinder to this also, in fact, in reference to a specific community in India, and it said “if you give it free to them, they will ask for money to take it”!). And the reason for the inability to sell well, is their lack of understanding of how a consumer’s buying process has changed. If all that a marketer can do, is to blast advertising into the face of the customer, and the customer refuses to acknowledge these and purchase his brand, it is the marketer’s fault that he has not changed his ways. To the tunes of the new consumer buying decision journey (I cover some of that in this presentation).

If you do not get your marketing and sales right, you go and sell off cheap. Even in boom times! Report good numbers, get your bonuses, and walk away. And leave the brand bleeding in the long term.

No can do. If I hold shares in companies that are doing this, I would sell those shares, and get out. As I’m sure the future isn’t bright!!

January 26, 2011 Posted by Sanjay Mehta | Uncategorized | deep discounting, failed salesman, group buying, groupon, snapdeal | 1 Comment