Last week I came across an article about how retailers would probably be resorting to discounting this holiday season. Apparently back in the spring when they ordered their holiday merchandise, the economy looked a lot better. Well, retailers using discounts during the holiday season is hardly new or noteworthy, they’ve been doing it for decades. What is noteworthy is how this practice, and in particular the very steep discounts of the past 3 years, is destroying the retailers who are doing it.
It is standard practice now for retailers to entice holiday shoppers with discounts, and to make those discounts bigger the closer we get to Christmas. They have trained consumers to expect those discounts, and to wait as long as possible, because if that sweater is 20% off on December 1, it will be 30% off on December 15 and 50% off on December 21. Retailers see full shelves and racks as Christmas approaches, and increase the discounts in a desperate attempt to get someone, anyone, to buy their merchandise. It’s a crazy and destructive game of chicken, however, because the shoppers know how it works, and they are waiting as long as they dare. So the shelves stay full, the prices drop further, and finally the consumers come in to purchase, but not until after the retailer has given away a substantial amount of profit.
In the past three years, it’s gotten even worse. Desperate retailers are marking down goods 70% and more. This is destructive for a few reasons. First, it makes consumers wonder what the product is really worth if the retailer can sell it at 70% off. The consumer must wonder, what did the retailer buy this sweater for in the first place, if they can mark it up to $100 and then sell it for only $30? And if the retailer is marking things up that much, why should I buy from it? How badly has that retailer been ripping me off all these years? Have I been paying $100 for $10 sweaters?
Second, the super-steep discounts are putting retailers in an untenable position. When you start selling goods at 70% off, soon enough nobody will ever pay attention to a discount of 10%, or 30%, or even 50%. It’s nuclear armageddon applied to retail pricing, and the fallout will hurt even those retailers that don’t discount so deeply. Consumers will now question everyone’s pricing, and it makes it impossible for anyone to run a sale without massive price cuts.
Finally, when I see a store with a 60% or 70% off sign in the window, my immediate thought is that the store is in deep trouble. They just seem desperate to me, and I'm not sure I want to jump on board a sinking ship.
Unless you're Apple, then you don't have to give discounts.
ReplyDeleteAnd not only don't they have to, they resist the temptation. Apple does a very good job of sticking to their price strategy, even though that has made them a niche player in the computer market.
ReplyDeleteAnd a very profitable player. I really wouldn't call them a niche player. They're one of the largest computer makers in the United States. It's not fair to compare them to Windows. it's better to compare them to other hardware makers, and particularly the ones generally considered to be higher-end, like Toshiba or Sony (and not Dell and HP).
ReplyDeleteAnd then of course, there's the music market, where they're one of the dominant forces, if not THE dominant force.
When it comes to computers they are most certainly a niche player. Their market share is small compared to the Windows market share, but their innovations are still pretty influential. It's in non-computer devices that they dominate -- phones and music players. It will be interesting to see what happens in the phone market, as the Android operating system grows in market share. I just bought a Droid X, and the reason I didn't even consider an iPhone is that I already am tied to Verizon. The cost of switching to AT&T (which many people are unhappy with anyway) is too high. I'll be writing about my smartphone sometime next week.
ReplyDeleteYou should have waited a few more months then. The rumors are stronger than ever that the iPhone is coming to Verizon early next year. I switched from Verizon to AT&T because I wanted the iPhone and was completely unimpressed by the BlackBerry.
ReplyDeleteAs for comparing them to Windows market share, you're making the wrong comparison. It's more appropriate to compare them to other hardware manufacturers like HP, Dell, Sony, etc... Apple is a hardware company that makes software for its hardware. Microsoft is a software company that makes the occasional hardware.