Negative Margins, But We’ll Make Up For It In Volume

Published On August 19, 2010 | By mbalogh | Blog

Almost daily I hear news on the economic situation we have in the US.  Almost daily, for the past several years.  Sure unemployment is topping 10% nationally and is still on the rise, but is that really a reason for retailers to give stuff away for free or even at a loss just to get people in the door?  It gives me flash-backs to the mentality just before the .com bust.  More people must be better right?

Does the “door buster” sale really work anymore?  Maybe a little, but not like it used to.  The whole point of the door buster is for retailers to get people in the door.  Once there, the retailer attempts to ride the shoppers’ purchase-anticipation high through to purchasing something they didn’t intend.  But consumers aren’t as dumb [read free with their cash] as they used to be.  Far from it.

We’ve officially been in a recession since 2007 but it feels to me like a whole lot longer and, I think, a lot of other Americans are feeling the same way.  I can’t remember the last time I felt comfortable enough with either my job or savings account to just let loose and spend frivolously.  And, more importantly, I’m used to living that way.  I’ve got budget maximization down to a science and I’ve got self-control down to an art.

I know what I want, and I know about what I want to pay for it.  I won’t be tricked easily by flashing lights and shining signs.  Today I need real value.  Sure, a door buster purchase would be nice but let’s face it, someone out there wants it more.  Someone out there is just a little crazier and is willing to wake up a little earlier and brave the elements just a little longer.  I’m not going to get up at 3am just to be disappointed and, besides, I’ve gotten used to asking myself, “do I really need that?”

The result is panic in the retail domain.

This year I’m seeing two trends in the retail market.  First, retailers who are battling each other so hard they forget about the customer, and second intelligent consumers who are able to exercise restraint no matter how crazy the retailers get.

Trend #1:
What it’s come down to is a battle of intelligence and control.  Retailers are using “door buster” sales on made up holidays to get people in the door.  And then they hope.  Great plan  — give the day a name they will buy on that day.  Who ever heard of Cyber-Monday?  What is that?  Just another invented holiday retailers use as an excuse to lower prices.  But it’s not just about lowering prices anymore; it’s about value, which is very different than price.

This leads to Trend #2:
Consumers are working hard to 1. figure out exactly what they want and the price they want to pay, and 2. ignore marketers.  So while we’re working harder than ever to get their attention, they’re working harder than ever to ignore us.  They’re more intelligent and better informed than ever before, and with the recession and jobless rate looming they’ve got more drive than ever to spend every dollar intelligently.  Gone are the days of a pretty picture and a catchy slogan being all you need to sell a product.  Okay, so the Old Spice Man is an exception, but have fragrance ads ever made sense?

Today’s consumer requires a real connection, and retailers need to generate real utility.  Build that, and they will come.

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