Beware The Discount: Gaining Market Share During A Recession

Discount

I was recently published in Alberta Venture, discussing how brands could tap into the recession zeitgeist.

It was a fun piece to write; it allowed me to review what brands were doing right - and wrong - to gain market share during the economic downturn. The gist of the article is:

There is nothing inherently wrong with tweaking your brand to reflect the recession. But like most things, it’s the execution that matters... “Dirt cheap” isn’t a long-term strategy; aspirational partner is. Ensure that brand tweaks make consumers feel like savvy shoppers, not scroungy skinflints.

I feel that recent campaigns by McDonald's missed the mark, but laud Target's "Brand New Day" campaign as an insightful way to make thrift a fun part of life.

Apple, A Luxury Experience

A good friend and former work colleague, Kristian Perry - also a great filmmaker, writer, and animator - emailed his response, and I was struck by what he had to say about Apple in particular:

In the computer world, I understand that there is a cry for Apple to make a cheaper notebook computer -- their cheapest one retails for about $1,000, but I think this would be a mistake.  Apple's real selling point is that you are not buying a computer, but an experience.

If they sold a cheaper machine, they might have to cut corners, and then you might see more breaks in the facade of the "Apple Lifestyle".  So unless they can maintain the quality of experience that comes with them being a computer luxury brand, they would be making a real mistake to sell a "cheap" model.

I think Kristian is totally correct. Not just about faulty products, but a cheapened experience; brands can harm themselves by falling into the "discount trap," especially during tough economic times.

A Lesson From Politics

It reminds me of an important lesson I learned during my time in politics. We were sending emails and soliciting donations for our cause. I noticed that when we emphasized the smallest donation, our overall yield was far lower than when we placed higher donation values above the fold.

Why was this happening? Didn't people want to know the value option - that we would take whatever we could get?

It turns out that they didn't want a value. Even in a pinched economy, our donors weren't giving away money to a worthy cause - they were investing in us, our candidate, or our mission.

When an ideal translates into tangible money, people don't want to toss pennies, they'd rather palm you $100 you can really use.

Try Angie's List Today!

The Discount Spiral

I'm not saying value or discounts are all bad; sometimes they can be very effective (Target is a perfect example). But if they're done all the time and that's the only message you really have - you're killing your long-term strategy.

Think about the last time you were in the grocery store: they probably had signage alerting you to their "discount price." But we all know their "regular price" was inflated and is never actually charged. Everything is discount all the time! So really, nothing is truly discounted, ever.

And if you're only talking about value and discounts, it makes your brand sound cheap. Whole Foods has experienced a stock dip just like other grocery brands, but two things separate them: their dip hasn't been as low as other retailers and they are far better positioned for post-recession spending (when consumers emphasize quality or variety over discounts).

What Do You Think?

Am I off the mark? Despite the recession, I believe you shouldn't hurt your long-term strategy for short-term gains. And all of you are thinking "No shit." But then why do many - dare I say "most" - brands ignore this advice?

Maybe it's a panic for good results each quarter. Maybe it's because CMOs have an average tenure of less than two years - the shortest time of the C-level suite.

Why do you think long-term strategy is losing out to fire sales? Why has your brand succumbed or how have you resisted the discount temptation? The community would love to hear your thoughts in the comments section below.

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P.S.: Read the full Alberta Venture piece and check out Kristian's great work.

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(Image courtesy of Jenny Downing via Flickr)

Steve Jobs Sucks

[If you like what you read here, be sure to subscribe.]  Steve, I think we need an intervention. You're acting all crazy-like.

Brief history: Apple debuts their new touchscreen on the iPhone and iTouch and people are really happy. Some creative developers code their own applications to use on the devices ("third party apps"), but to use them, they have to "jailbreak" the iPhone/iTouch. Steve gets mad and Apple's next firmware update has the potential to brick your iPhone/iTouch. However, Apple promises that apps similar to the most popular third party apps will be unveiled in early 2008. Now, the decision is between jailbreaking the device to use all these cool (and free!) third party apps or comply with Apple and wait for the upgrade.iTouch 300

On Tuesday, Steve announced that the new apps were ready. Except there are only five apps. And it'll cost you $20. And new iTouch and iPhone buyers will have it already installed.

Here's the crux of my anger and the part that really chaps my ass: Apple is charging for functionality rather than products. This is not a media item that is of definite size, length, and value. Instead, this is an upgrade in regards to how the iTouch works.

So, what message does this send to Apple customers? Here are a few off the top of my head:

  • Screw early adopters - Anyone who buys an iTouch from this point on gets the upgrade installed. Early adopters, true advocates, and Apple cultists who bought the iTouch earlier need to chuck out another $20. Hmm, where does this sound familiar. I seem to remember a company selling a bunch of fancy phones and then knocking the price down $200 much to the chagrin of the folks who had already shelled out their hard-earned cash.
  • We know you'll buy it even if it sucks - The hubris of these types of business decisions is amazing. Despite anticipated customer push-back, they did it anyway. Because they can. It's almost as though they thought it was a privilege to use Apple products.
  • We're willing to nickel and dime you - What a big "screw you" to the customer who plunked down almost $500 for an iTouch. Can you imagine if I bought a stereo and then had to pay a little extra to get the "Stop" button? It's part of the user experience!

So what's the lesson from all of this? That Steve must be trying to get more bad press in a couple months than Apple has gotten in years? That he fired all the marketing guys? That he's off his rocker (or drunk with power)?

The lessons are these:

  • In terms of not allowing third party apps, we know that open systems (Google, Facebook recently) thrive and that closed systems eventually wither. Apple is among the closed-est. From Fast Company: "Jobs may have to accept that Apple's next wave of growth--or energy, as Einstein might have put it--depends on syncing up his products and platforms with those of his competitors." Facebook opened up their system to third party apps and business is booming. In order to do this, one has to accept that it is not possible for them to think up (and make) every apps possible, ever. This humility seems beyond Jobs.
  • In terms of the $20, know that it's not the money. It's the principle.

I realize this issue is literally biblical, but come on. Apple has built a reputation as the cool, sleek, uber-designed, arty, rebel computer manufacturer (not difficult if Bill Gates is your competition). But they seem to be forgetting that these days. The cult they've built is not going to stand for this crap forever. For this snub, Steve, you can go iFuck yourself.

But this isn't a totally negative post, Steve. I can thank you for one thing: you made my decision about whether to jailbreak my iTouch really easy. For a couple of minute's work, I'll have a ton of apps all for free. And next time I'll remember this when I think about which mp3 player to buy. Thanks Steve!