Thoughts From The Cake Scraps

As I laid out in my last post, the hottest business trend of showing deep discounts just leverages the current sale-oriented culture.  While one can find these deals in nearly every email that passes through the inbox, it is not more plainly laid out then with GroupOn where stuff is simply 50% (ish) off all of the time.  Everything they are selling, every day of the week.

Rather than delve into whether or not GroupOn takes advantages of small businesses, I am going to stay focused on the business concept that drives GroupOn – discounts compel people to buy.  Sometimes they need the item and most of they time they don’t.  The thing is, the deal is just so darn good and the discount so darn large people are left asking themselves “how can I not buy this?”

The reality, of course, is that we’re still in the early phases of this broad based discount solution and businesses are still trying to figure out if there is a way to effectively use it as a marketing channel.  Regardless of how it turns out, this is clearly a marketing expense and, therefore, will come out of the marketing budget as part of the promotion cost.  Small businesses may not have the data or wherewithal to figure out the true cost, but my guess is that they will find out via word-of-mouth or their own P&L statements, even if they don’t have the gory details.  With this in mind, let’s focus on the major players only for the sake of discussion.

When a company runs a promotion as significant as a GroupOn, they are surly going to be tracking everything they can to figure out if it was a good deal or not.  Did the promotion drive enough incremental sales to cover, not only the cost paid to GroupOn and the cost of the goods/service provided, but also of the subsidized behavior (people who would have purchased anyway)?  That’s a lot to overcome.  The business benefit, for the moment, is more that it can help make a company look cool and interesting.  It may even draw people back into the brand that have been away for a bit.

Still, it is all a marketing expense.  It comes from a marketing budget.  And this is what people fail to realize.  A good that is on clearance is discounted because the business needs to move through the inventory and is, therefore, not a marketing expense.  The loss of margin dollars comes out of a different part of the budget.  The consumer is actually getting a deal here because the goods used to be sold at full price.

This is not the case with a deal like GroupOn (or LivingSocial).  Since these are marketing expenses, the cost of a marketing is built into the cost of the product.  That fact that you, as an individual, get the full price product for 50% off doesn’t change the fact that, in total, it didn’t cost the company anything.  They simply didn’t run a “Buy one get one” promo or a “Gift with purchase” promo.

What this means for the sustainability of this heavy coupon culture is that it will only continue to work so long as there are enough consumers willing to continue to buy the product without a marketing promotion.  My prediction is not that the discount culture will go away (although I am skeptical of the long-term viability of operations like GroupOn) but that you’ll see the same companies or the same types of companies use that type of promotion and that it will become stale.

For the moment I, as a consumer, would – and do -  jump on that discount train but my prediction is that it won’t last as it currently exists.  After more and more companies run those type of promotions we’ll start to see clear trends emerge.  As those trends become more solidified even the less advanced businesses will start to see that “business of selling product/service A are never featured” and there will be more whitepaper style publications on the success or failure of the promotions.

While not as overdone as Black Friday, as Black Friday has a good 20 year head start, I would keep an eye on this.  The simple truth is that a company cannot give away goods at 75% off (50% discount and then 25% to deal provider e.g. GroupOn) and not raise prices.  The promotion is simply too deep and too short lived (versus a longer buy one, get one) to last.  The math doesn’t work.  So get the the deals now, while business still have not “marked ’em up to mark ’em down” and don’t fully understand what the expected cost really will be.

And remember, the “deals” at Coach Outlets actually have a higher profit margin than the full price regular stores on 5th Ave.

Did you get a deal recently?

This has been a Thought From The Cake Scraps.

As a marketer, I’m acutely aware of the benefits of a well ran promotion.  And as a (top 30 under 30) direct marketer, I know the coupon/promo code is a valuable tool for attribution.  Still, lately I have become frustrated with all of the discounting going on.  I’m going to break this up into at least two parts to make it digestible.

Case 1: Black Friday

Remember when Black Friday used to mean something?  Remember when it was a day of unheard of deals, available only that one day?  It was great, wasn’t it?  When it first started in the 1970’s, and really grew in the 1980’s, it was a day of great reveal.  Nobody, it seemed, knew what deals would await them.  Later, websites were created for the sole purpose of revealing the circulars which retailers tried to keep as quiet as they could.  And then, what started out as a heavy shopping day due to most non-retail employees being on vacation, started to creep.

The creep started in a fairly innocent way.  Stores would have day-after-Thanksgiving sales.  And then The sales grew bigger and door-buster sales started to emerge.  Stores needed the foot traffic and they needed people to shop with them before they shopped elsewhere.  Prices, for the moment, could only go so low.  Next, stores started to open earlier.  First it was 6:00, then 5:00, then 4:00.  Once the process started there was no turning back.  The every year the door-busters came earlier until they opened at midnight.  They could go no earlier.  Just kidding.  This year Walmart is opening at 22:00 Thanksgiving night.

While stores are racing to open earlier than ever, the tentacles of Black Friday started to invade other channels (including Cyber Monday).  Signs, circulars, and emails started proclaiming “Black Friday Like Prices”.  Amazon.com made the whole week a week of deals.  I even saw “Black Friday in July” slogans to tell me just how good of a deal I was getting over the summer.  As Black Friday neared, stores no longer strived to keep things secret.  In fact, they now actively release circulars early and those sites that used to leak the deals are now commercialized versions of their old selves.

The immediacy of the day has been going downhill for quite some time.  Then, Walmart pulled a game-changing move – again. In 2011 they will not only match competitors Black Friday prices on Black Friday (as they did in 2010) but are offering a price match that “is both forward looking and retroactive”.  Basically, as long as supplies last, you’re good to go all season long.  Talk about a lack of urgency.

Now, the important thing to keep in mind is that I’m not sure what the alternative is for these stores.  The fact is consumers have a finite amount of money to spend on gifts and if a store doesn’t attract them in and get the consumer to spend at their store, the consumer will just go someplace else.  Ultimately the consumer is the one who decides when enough is enough.

Will you be heading out at 22:00 on Thanksgiving night to shop?

This has been a Thought From The Cake Scraps.

I do love a good Black Friday event, but it appears that this year stores are coming up a bit short.

To be fair, I am only looking at Wal-Mart.  That is really the only store that will have a sale of any type in my area.  Yeah, I live in ‘that town’.  But I also hate the huge lines at the major stores.  It just isn’t worth it for me.  Never has been.  But if it is your thing then go for it.

Anyway, even though I have only really looked at Wal-Mart I think that they are usually a good gauge of how Black Friday deals will be overall.  If Wal-Mart cannot put on a good show then we are in for some trouble.  The exception might be for the kids.  They do have lots and lots of cheap stuff that will appeal to kids.  So maybe you don’t find something for yourself, but pick up something for the kids.

The other thing that I noticed is that the deals, in terms of items offered, are very similar to last year.  Maybe it is like that every year and I have missed it.  All I know is that Wal-Mart seems to have TVs, some okay console bundles, okay movies deals, a GPS unit, and computers on sale.  Same stuff, new day.  I guess it is still a deal.

I will do some more browsing on bfads.net because I really like how they lay things out. (Leave a comment if you have a site you really like)  Perhaps some deal will show up there.  I am looking to buy a laptop, but I want it to have bluetooth and not be totally tiny.  Battery life is also a plus.  I will have to do a bunch more research to figure out what is truly a good deal.

I want to spend my hard earned money retailers, give me a chance!  I’m still pulling for some great on-line deals to pop up.  TigerDirect has had some great ones already.  I hope others join in!

Will you be going out on Black Friday?  If so, where and why?

This has been a Thought From The Cake Scraps.