Perils of deep discounting: What businesses must do as the threat of brand dilution looms large

Published: January 25, 2019 12:11:22 AM

American Express cards — those exclusive and sought-after symbols of achievement — are now being peddled desperately by sales people trailing you as you pass them by at airports.

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By Ashish Mishra

American Express cards — those exclusive and sought-after symbols of achievement — are now being peddled desperately by sales people trailing you as you pass them by at airports. From Black Friday subsuming the week and Alibaba’s Single’s Day threatening an upstage, festive and year-end sales seem to be hitting new lows of consumer seduction. Deep online discounting has returned in its reinvigorated frenzy after a hiatus in 2017. Many global and local offline retailers including JCPenney and Payless are in trouble too. We are, without doubt, in the throes of a retail apocalypse.

Discounting woes
Discounts are not something new, but their degeneration — from easing sampling and trials for a challenger brand or a new concept as envisaged under classic promotional marketing, to buying market shares to managing results for valuation and business of brands — is new. And, perhaps, questionable.
It is heartening to see at least a set of brands ask those questions and voice their concerns of brand dilution due to it. Apple, the world’s most valuable brand, leads the fight, making it contractual for online retailers to allow only its authorised sellers to sell online. Sony and LG have also taken measures to prevent predatory prices from ravaging their carefully curated brands.

This is an encouraging sign: caring for your brand when everyone is busy with online promos and offers. Some of the fastest growing global brands of 2018, such as Hermes, Paypal, Adobe, Mercedes and Zara, have already demonstrated that it pays to do the opposite — strengthen your brand when everyone else is busy discounting it.

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Indeed, given the severe dilution of brands due to sustained deep discounting in digital marketplaces, it is increasingly becoming important to put the role of the brand in the right context, to begin to see it as the only sustainable competitive advantage businesses have that can be best deployed for value creation and growth.

The brand potential

Structural optimisation and cost efficiency: Whether it is a well-funded new business or a challenged traditional organisation, all businesses invest in various functional aspects. Wouldn’t integrating the functional strategies through an organising principle save costs and increase efficiency? And what would be better than using the brand itself as that organising principle?

Adopt a ‘luxury mindset’: Is it even possible for a brand to create a premium when all that businesses can think of is discounts? A strategic choice of what is valued more by customers will help create not only a stronger demand, but also justify a premium. These are lessons all categories can learn from luxury brands, which continue to thrive even when all else slides down on the discounts slush.

Architect the portfolios optimally: By employing a brand-centric architecture, it is possible to build and manage a portfolio to optimise the equity flows. This helps clearly decide on extendibility and the real need for additional primary and secondary brands.

Resolve the proliferation: Experience is a sum total of all the touchpoints not limited to communication alone. A large number of these touchpoints across Indian businesses do not follow a converged theme. Wouldn’t it be efficient and productive if there was one? Again, can there be a better basis for effecting this convergence than brands themselves?

If we open up our minds beyond the business and financial processes at one end, and communication levers at the other, we will see the vast opportunities that connect the two in between. Unfortunately, the practitioners of these two ends of the spectrum prefer to keep it disjointed to hide their incapability in bridging them.

The author is MD, Interbrand

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