Discounts- A marketing tact or a strategy?

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Discounts- A marketing tact or a strategy?

  1. 1. DISCOUNTS!<br />MARKETING MANAGEMENT PROJECT<br />
  2. 2. Sale!<br />SALE<br />DISCOUNTINGThe Art Of Selling!<br />ventafemenino<br />ventefeminin<br />
  3. 3. What Is A Discount?<br /><ul><li>Discounts are reductions to a basic price of goods or services.
  4. 4. Specific type of marketing promotion in which invite shoppers to save money on specific products or product groups.
  5. 5. Can occur anywhere in the distribution channel.
  6. 6. Modify either the manufacturer's list price, retail price or the list price.</li></li></ul><li>History Of Discounting<br /><ul><li> The Latin roots of discount reflect the early counting table origins, thus indicating a reversal or movement away from the count from ‘COMPUTARE’.
  7. 7. When the French picked up the practice they called it “D’ESCOMPTE”.
  8. 8. By the middle of the 17th century, the English had begun to apply the practice in the pepper trade with Holland using the current word “DISCOUNT”</li></li></ul><li>Why Create Discounts?<br />The purpose of discounts is to:<br /><ul><li>Increase short-term sales
  9. 9. Move or liquidate out-of-date stock known as “dead stock”
  10. 10. Reward valuable customers
  11. 11. Encourage distribution channel members to perform a function
  12. 12. Or otherwise reward behaviors that benefit the discount issuer
  13. 13. Some discounts and allowances are forms of sales promotion</li></li></ul><li>Reasons For Discounting<br /><ul><li>Attracting New Customers
  14. 14. Creating Brand Loyalty/ Awareness
  15. 15. Market Penetration Strategy
  16. 16. Introductory Promotion</li></ul>Example: Mumbai Mirror with TOI<br /><ul><li>Stock Clearance
  17. 17. Market Competition</li></li></ul><li>When Are Discounts Offered?<br />Discounts can be offered based on the type of product, goods or merchandise they have in stock. Consumer durables, apparels and accessories are usually discounted as follows:<br /><ul><li>Clearance Sales
  18. 18. End of Season Sales
  19. 19. Festive Sales
  20. 20. Exceptions: FMCG’s can be discounted year round by various promotional offers such as buy 2 get 1 free or giving extra quantity for the same price.</li></ul> E.g.-Big Bazaar, Food Bazaar, Dmart. <br />Godrej’s Nature’s Basket and Reliance Fresh which caters to the upper middle class and upper class<br />
  21. 21. Is there a boost in sales turnover during discounting season as opposed to the year round sales<br />
  22. 22. Where are the Discounts Given<br />The place for discounts depend on Demographic Segmentation, the variables of which are summarized below-<br /><ul><li>Age-Marketers design and promote products differently for different age groups
  23. 23. Gender-Gender segmentation is widely used in consumer marketing.
  24. 24. Income-Many companies target affluent consumers with luxury goods and convenience services.
  25. 25. Lifestyle- Marketers are increasingly interested in the effect of consumer "lifestyles" on demand. </li></li></ul><li>Has “consumer brand awareness” lead to a has boost in sales during the sales season?<br />
  26. 26. Types Of Discounts<br />
  27. 27.
  28. 28. DiscountingScenario’s<br />The reason for discounting can be justified under the following:-<br /><ul><li>The Business Cycles
  29. 29. The Market Environment
  30. 30. The Product Life Cycle
  31. 31. Consumer Psychology</li></li></ul><li>The Business Cycles<br /><ul><li>BOOM: A period of fast economic growth.</li></ul> Where:-<br /><ul><li>RECESSION: A period of slow down in economic growth.</li></ul>Where:-<br /><ul><li>High output.
  32. 32. High demand.
  33. 33. low unemployment level.
  34. 34. increase in business investments.
  35. 35. extra spending by consumer.
  36. 36. Increase in money supply.
  37. 37. Decrease in output
  38. 38. Decrease in demand
  39. 39. Increase in unemployment
  40. 40. Low investment
  41. 41. Low spending</li></li></ul><li><ul><li>Price Strategy During Boom:
  42. 42. Increase in supply of money
  43. 43. Marginal drop in price by retailer in order to increase the cash in hand.
  44. 44. Thus increase in profit by increase in sales volume with low marginal price
  45. 45. Thus decreasing in profit margin per product but increase in overall profit.</li></li></ul><li><ul><li>Price Strategy During Recession:
  46. 46. Decrease in money supply
  47. 47. Reducing prices and making products affordable.
  48. 48. Initiate sales during a lull than increase the sales.
  49. 49. Whether a firm should levy discounts during recession primarily depends upon the financial position and resources of a company.
  50. 50. Companies high on resources-
  51. 51. Opportunity to increase market share.
  52. 52. Capture more consumers via discounts and advertisements
  53. 53. Companies low on resources-
  54. 54. Give discounts by reduce their marginal profits.
  55. 55. Risky to invest on advertising
  56. 56. Must restrict advertisements and give discounts </li></ul> with caution.<br />
  57. 57. Retailer & Consumer point of view:<br />
  58. 58. Do Retailers consider discounting as a prime facet of sales?<br />
  59. 59. Market Environment<br /><ul><li>OLIGOPOLY-
  60. 60. Market dominated by a small number of sellers who are aware about the actions of the competitors.
  61. 61. Strategic planning involves the responses of the other market participants. Thus highest risk for collusion.
  62. 62. Discount strategy:
  63. 63. Discount on popular product will increase the sales level initially.
  64. 64. Needs constantly evolving different strategy.
  65. 65. Offering</li></ul>Discount on the fast moving product or a relatively stagnant product.<br />= Example:<br />Vodafone discounting rates for caller tunes. <br />
  66. 66. <ul><li>MONOPOLY
  67. 67. An enterprise has sufficient control over a particular product or service
  68. 68. Lack of economic competition for the good or service and viable substitute goods.
  69. 69. Discount Strategy
  70. 70. Introduce attractive pricing to keep demand level constant.
  71. 71. Offering</li></ul>A company can resort to two strategies: <br /><ul><li>Discounts for first time customers to increase market share
  72. 72. Discounts to retain old customers</li></ul>= Example<br />Set top box provider –Dish TV when entered the market was the sole distributor of the product .<br />
  73. 73. The Product Life Cycle<br />I] Introduction Phase:<br /><ul><li> New product
  74. 74. Heavy promotion
  75. 75. Free samples & Heavy discount
  76. 76. Attract consumers
  77. 77. Build Future customer
  78. 78. Shift consumer loyalty to their brand
  79. 79. Market Penetration strategy (low pricing)
  80. 80. Create Brand awareness
  81. 81. Examples
  82. 82. Mumbai Mirror was distributed as a complimentary copy with Times of India for a month on its launch.
  83. 83. Free sachets of new products under the same Umbrella are distributed with old products. Example: Surf Excel Oxy Blue sachet distributed free with Surf Excel packs.</li></li></ul><li>II] Growth Phase<br /><ul><li>Period of rapid revenue growth
  84. 84. Increase in sales
  85. 85. Need for expansion of the distribution channel
  86. 86. Entry of Competitors
  87. 87. Price competition & increase promotional cost
  88. 88. Marginal discounts given to retain customers </li></ul> while attracting new ones.<br /><ul><li>Examples
  89. 89. Free Kurkure with a bottle of Pepsi.
  90. 90. 1 bar of Kit Kat free with the Kit Kat Family Pack.</li></li></ul><li>III] Maturity Phase:<br /><ul><li>Strong brand awareness
  91. 91. Less promotional expenditure
  92. 92. Decrease in market price (in case of intensive competition)
  93. 93. Increasing usage per customer
  94. 94. Converting non- users into customer
  95. 95. Small discount to retain consumer as per growth stage
  96. 96. Examples
  97. 97. 100ml extra on a 500ml Coca Cola bottle
  98. 98. Toothbrush free with Colgate Toothpaste</li></li></ul><li>IV] Decline Phase<br /><ul><li>The market becomes saturated, the product becomes technologically obsolete, or customer tastes change.
  99. 99. Brand loyal product retains the profitability
  100. 100. Reducing prices and heavy discounting
  101. 101. Discounting as also a tactic to clear the existing stock
  102. 102. Example
  103. 103. Maruti 800 price was dropped after the discontinuation was announced.</li></li></ul><li>Consumer Psychology<br />
  104. 104. The Consumer Psychology<br />Defined as - analyzing “what makes a consumer tick”.<br />It deals with-<br /><ul><li>The psychology of how consumers think, feel, reason, and select between different alternatives .
  105. 105. The behavior of consumers while shopping or making other marketing decisions.
  106. 106. How consumer motivation and decision strategies differ between products that differ in their level of importance or interest that they entail for the consumer.
  107. 107. How marketers can adapt and improve their marketing campaigns and marketing strategies to more effectively reach the consumer. </li></li></ul><li><ul><li>Consumer psychology in relation to discounts</li></ul>General consumer behavior at the time of discounting season are as follows-<br /><ul><li>Skeptical
  108. 108. Experimental
  109. 109. Loyal
  110. 110. Impulsive</li></li></ul><li>Field Based Research<br />Customer & Retailer Survey<br />VIDEO SURVEY:<br />Sample Size of 25 people<br />Mostly aged between 16-28<br />QUESTIONAIRE BASED SURVEY:<br /> Survey of 30 retailers & brand managers<br />Data Collected<br />
  111. 111. Video Survey<br />
  112. 112. Do people tend to splurge during discounts?<br />
  113. 113. Do consumers believe that goods that go on discounts are of inferior quality or defected<br />
  114. 114. Putting things in perspective<br />
  115. 115. Consumer Insights<br />Slam on the Breaks<br />Consumers who–<br /><ul><li>Been devastated emotionally by recession
  116. 116. Suffered financial loss
  117. 117. Lost their jobs
  118. 118. Seen friends or family loose their jobs.
  119. 119. Impact:</li></ul>Not much impact on these consumer.<br />Live for Today<br />Consumers who-<br /><ul><li>Don’t think before spending.
  120. 120. They continue to spend in-spite of financial crunch.
  121. 121. Mainly includes shop -a-holics.
  122. 122. Impact :</li></ul>Change purchasing patterns as they Tend to splurge.<br />
  123. 123. Consumer Insights<br />Comfortabally Well<br />Consumers who –<br /><ul><li>Financially well to do.
  124. 124. Have no fear at the time of recession
  125. 125. Have sufficient financial back up
  126. 126. Lead their lives as normal
  127. 127. Usually includes celebrities</li></ul>Pained but Patient<br />Consumers who-<br /><ul><li>Have felt the pinch of recession
  128. 128. Have suffered measurable financial loss
  129. 129. Have a positive outlook hoping to see the light at the end of the tunnel
  130. 130. Make every attempt to save every penny they can
  131. 131. Primarily includes the middle and upper middle class
  132. 132. Impact:</li></ul>Marginal affect.<br /><ul><li>Impact:</li></ul>- Highly affected by discounts. <br />-Shopping patterns are dependent upon the commodities in question.<br />
  133. 133. Impact of Discounting<br /><ul><li>In the case of essential goods</li></ul>Consumers under this segment will purchase more goods at the time of discount.<br /><ul><li>Examples-toothpaste, food items
  134. 134. In the case of treats</li></ul>Treats mainly relate to commodities which are not essential in nature but consumers none the less engage in purchase of these commodities<br /><ul><li>Examples- apparels </li></ul>Heavy discounting does pull in consumers to come and spend. <br />
  135. 135. <ul><li>In the case of durables</li></ul>These include products which have a long life <br /><ul><li>Examples-washing machines , refrigerators ,etc</li></ul>Heavy discounts do boost sales of these commodities but only marginally.<br /><ul><li>In the case of Postpone-able goods</li></ul>These include commodities whose purchase can be avoided <br /><ul><li>Examples- movie tickets , holiday packages</li></ul>Discounts schemes such as –<br />Vodadfone Tuesdays<br />Tour packages<br />
  136. 136. Discounting : A Marketing Strategy Or Tactic? <br />
  137. 137. Marketing Strategy<br />Discounts can also be used as a strategy by companies. Changes in pattern of expenditure of consumers may be there because of the strategy , used by the companies. But such discounts in the long run may loose their shine as consumer might become more aware and such a way of image and brand building might not work. Such a strategy has proved to be successful so far and is still working. There still exits gains which can be appropriated.<br />
  138. 138. Classification on the basis of Pricing Strategy<br /><ul><li>Low price product and low profit margin
  139. 139. High volume sale for profit
  140. 140. They control operational
  141. 141. They operate in specialty markets
  142. 142. Don't get into price war
  143. 143. Thus, other elements of the marketing mix are used to create higher value for which the customer will pay more.
  144. 144. Targeting exclusive markets as they are far less price sensitive
  145. 145. Add value through increase in operational spending .
  146. 146. Lower sale volume and high price
  147. 147. High profit margins</li></li></ul><li>Setting the Equilibrium Price<br />
  148. 148. Marketing Tactic<br /> Most of the retail apparel brands get their big part of sales while their products are being sold at a discount. This is a pricing tactic which is being followed by these companies. This works more from the psychological side of the customer. It is like doing marketing throughout the year and getting fruits of that marketing during discount periods. During such periods of these companies run out of their stocks by the end of discount period. Signifying that these companies often achieve their targets and their tactic pays off.<br />
  149. 149. Indian retailers believe discounting is the last resort to sell their merchandise<br />
  150. 150. INTRIGUING CASE STUDIES:1. THE LOOT2. Foreign Brands.<br />
  151. 151.
  152. 152. The LOOT<br /><ul><li>“The LOOT” is a multi-brand discount store, offering customers a wide range of products in apparels, footwear & accessories for men, ladies and kids with discounts ranging between 25% - 60% – throughout the year.
  153. 153. The store retails brands like Reebok, Puma, Levis, Red Tape, Lee, Wrangler, Spykar, Allen Solly, Van Heusen, Eccentrics, Ruff, Gini & Jony, Lilliput, Killer, Bus Stop, Indian Terrain and more 100 brands.
  154. 154. The LOOT currently operates over 120 stores in India.</li></li></ul><li><ul><li>Quality Goods at Reasonable Prices plus Value Additions such as a good shopping environment, changing rooms, etc.
  155. 155. Discounting as a strategy as the company tends to concentrate on sales by maintaining a lower profit margin.
  156. 156. The company concentrates on Sales Volume more than the Profit per Product.
  157. 157. They have targeted the middle class Indian consumer who has now become more brand conscious.
  158. 158. Recession has led to an increase in the sales and market share of The LOOT</li></li></ul><li>United Colors of Benetton<br /><ul><li>Global fashion brand owned by Benetton Group: HQ - Treviso, Italy
  159. 159. Founded by Benetton family in 1965; now global network of 6200 stores in 120 countries with yearly turnover of €2 billion
  160. 160. Casual clothing marketed as ‘United Colors of Benetton’
  161. 161. Ads by Oliviero Toscani contain striking images unrelated to the products</li></ul>E.g. Ads on AIDS, war, death row inmates and such controversial subjects<br /> ISSUE : Below average sales growth in India<br />
  162. 162. What UCB did…<br /><ul><li>UCB’s key competitors in the clothing market are Levi’s, Pepe, Wrangler, Lee, Tommy Hilfiger, WLS etc
  163. 163. To counter other international brands, UCB has international retail formats offering wide range of styles and options.
  164. 164. Advertising different from competitors – on lines of international campaign – controversial but cut-through
  165. 165. Distinctiveness from competitors seen in exquisite Italian styling and options and international garments at Indian prices
  166. 166. Gurgaon factory to increase scale to compete - but higher-end garments imported from Milan, Italy.
  167. 167. Thereby reducing their inventory cost and thus used discounting to promote their brand.
  168. 168. Thus they adjusted their prices for the Indian consumer.</li></li></ul><li>CONCLUSION<br />

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