Are you giving away too much this Christmas?

You could be giving away more than you need this Christmas discounting and promotion season according to Channie Mize, general manager for retail at Periscope, a McKinsey solution. 

Every retailer is looking to do whatever they can to get customers through the door, or spending online, from the moment Black Friday arrives right through to the New Year. There are a lot of factors that influence each step of the buying cycle for customers and price and promotion assortment are clearly important, but what impact are the prices we set having on customer behaviour and profits? Is there a point where price loses its weight?

Not only that but in what way do you offer that price? Is it a straight discount across the board, category linked, or designed to encourage volume purchasing? And of course, sometimes, the promotions retailers have to offer are in direct response to what is happening in the rest of the retail space, often forcing them to make promotional decisions that are not necessarily in line with the buying decisions they committed to for this season nearly a year ago.

Compete, but not too much

One of the biggest mistakes made by retailers is to only consider their price and promotion decisions in terms of the impact on competition, the margin on that product and sale volumes. The truth is that without the right scrutiny retailers could be pushing customers away from more profitable lines, or worse still combinations of lines, that they would otherwise be buying.

Retailers need to understand which products are the right ones to discount or promote and which, when promoted, will actually drive incremental sales and margin over their baseline sales. Often the products retailers promote are cherry-picked by customers and never lead to incremental basket sales.

All of these problems can be answered with insight. The problem is that the vast majority of retailers have spent huge sums of money implementing systems that ensure they sweep up every conceivable piece of data into a big data store. Why is that a problem? It is happening so fast that they have tons of data, little information, and even less insight.

Data should inform discounts

The whole challenge is made all the more complex by external factors, all of which can be used, as data, to inform decisions: the competition, the weather or the economy, to name but a few. All of these impact the behaviour of the customer in real time and affect their sensitivity to price.

You probably thought I meant “giving away too much discount” at the start of this article, but the impact of poor insight is much bigger than discounts or promotions. You could end up giving away too much in terms of discount, margin or customers to the competition. You also might be giving customers too big a discount, for no real gain.

It might be too late for this holiday season if you don’t already have the systems and processes in place to get the kind of insight that I have outlined above, but there is plenty of time to prepare for 2016. Online retailers in particular are becoming extremely agile and adept at quickly reacting to customer behaviour. You might get away with it this year, but in the same way that consumers are becoming insight-driven, retailers must do the same.