The Overreliance of Retailers on Discounts and Promotions: A Necessity During Hard Times

Introduction

With the increasing shift towards online shopping and the financial challenges brought about by the recession and the pandemic, many retailers have found themselves heavily relying on discounts and promotions to keep their businesses afloat. This article explores the reasons behind this reliance and whether it is a sustainable strategy for retail success.

The Impact of Economic Reversal and the Pandemic

During times of economic downturn, many consumers have struggled to manage their finances, leading to a reduction in discretionary spending. This has placed significant pressure on retailers to adopt aggressive promotional strategies to attract and retain customers. The 2008 recession and the subsequent challenges posed by the 2020 pandemic have further exacerbated these challenges, compelling businesses to explore alternative methods to drive sales and ensure survival.

Why Discounts and Promotions Have Become a Staple

Many consumers find themselves in a bind, with both essential and non-essential items becoming a financial strain. This has led to a heightened reliance on discounts and promotions. Retailers have recognized this and are offering more frequent and substantial deals to encourage purchasing behavior.

For example, during the pandemic, items such as toilet paper, hand sanitizer, and certain food items became critical necessities. The unpredictable economic landscape and job insecurity have pushed individuals to scrape by on essential purchases, leaving little room for luxury or non-essential spending. As a result, promotions play a crucial role in attracting consumers who are looking for the best deals.

Examples and Analysis of Discounting Strategies

Take JC Penney's decision to abandon its promotional approach and the subsequent decline in sales. The company returned to a strategy of "Hi-Lo pricing" where a second item at 50% off would attract customers to each store. Similarly, Walmart and Costco have flourished with their everyday low prices (EDLP) model. However, for most retailers, regular promotions and discounts have become a necessary part of their marketing strategy.

Consider the example of name brand cereal manufacturers. These companies tend to offer deep discounts on sales weeks, occurring once a quarter. Similar patterns are observed in other categories such as soups, sodas, yogurts, and frozen meals. These periodic promotions help keep prices attractive to consumers, ensuring their brand remains top of mind during times of financial constraint.

The Necessity of Promotions for Business Survival

From a business owner's perspective, advertising and promotions are crucial for survival. During periods of economic instability, customers become increasingly price-sensitive. Offering discounts genuinely helps businesses attract and retain customers who are looking for value. For entrepreneurs navigating these challenging times, it is imperative to strike a balance between maintaining brand value and offering attractive deals.

The argument presented here is that while promotions work, they should not be seen as a long-term strategy. Instead, businesses must focus on building brand loyalty and ensuring that their core offerings remain competitive and relevant. By doing so, they can create a sustainable foundation for growth that goes beyond mere promotions.

Conclusion

In conclusion, the reliance on discounts and promotions has evolved from a casual marketing tactic to a crucial survival strategy for retailers. As the economic landscape continues to evolve, businesses must adapt to these changing conditions while striving to build long-term customer relationships.

Businesses need to strike a balance between offering competitive discounts and focusing on building brand value and customer loyalty. By adopting a blend of strategic promotions and consistent, high-quality offerings, retailers can weather economic challenges while remaining competitive in the long term.