Well these days the consumer rules the market and with ever growing competition and more players- it becomes more imperative than ever to retain your consumer base. One strategy that companies tend to employ in order to achieve this is giving them more for less- leading to what is known as value retailing.
The reason why companies do it is very simple- Attract people, creating value for their goods and ultimately selling. Normally they tend to employ one or more of the following strategies:
1. Discounts
2. Free
3. Bundled offer
Companies often have a firm belief that when they generate sales they are creating value for themselves and the share holders.True ! But by value retailing are you not partly also performing value destruction?Let us see a simple example.
You have a product P which can be retailed for 100 USD, but since you are new in the market you offer a discount of 40% to make your market presence felt. Further you offered a product Q retailed at 40 USD absolutely free if someone orders 10 units of P. What is the result? People start buying your product at 60 USD and in fact you start doing pretty well. But you notice a rival brand X still retails at 90 USD of almost the same specification and sells pretty well. You decide to increase your price to 80 USD offering just 20%off on your base price of 100 USD. What happens? any guesses.
Not all of your customers are now willing to buy your product since they were just buying it because it was cheap. Now to retain the base you need to sell for less? And what about product Q- it gets branded as something you offered for free to bulk buyers, so why should they buy it? Perhaps some will- but doesn’t the brand image of Q takes a beating !! So haven’t you done value destruction for yourself, while essentially you felt you were creating value?
So should you not offer discounts? Yes you should but only for short durations- so that it becomes more exclusive and never launch a product at discount.Always remember there is no end to more! The more you give, the more the consumer will want- the key lies in striking the right balance.
Food for thought: How much value for money was your last purchase ? How much is it really worth according to you?
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