Inconspicuous Discounting

I was browsing in a well-known North East department store this week when I spotted a winter coat that I have had my eye on for some time. Having decided to splash the cash, I was surprised to find a 20 per cent discount applied at the till - a welcome surprise! But there were none of the usual “sale” signs obvious within a store that was busy without being buzzing.

I took the discount without blinking but an article in the Financial Times today reminded me that the inconspicuous sales are becoming more frequent especially among niche retailers towards the higher-end of the retail market. Luxury shops are making greater use of private invitation-only evenings where valued customers can be wined and nudged gently into pre-ordering new products or persuaded to buy up some of the excess stock.

Here is the link to Sarah O’Connor’s piece on discreet discounts.

Just a few months ago sales of luxury products were thought to be immune from the ravages of the credit crunch. But the collapse of investment banks, a steep decline in city bonuses and thousands of job losses in financial services have contributed to a sharp fall in demand for high-value luxuries. The income elasticity of demand for such goods ought to be strongly linked to the economic cycle - we are seeing growing evidence of this now.

But for retailers selling top-end brands who have rarely had to use deep price discounting to shift modest amounts of stock, these are unchartered waters. The danger is that if they cut prices too far their customers may begin to anchor downwards the prices that they regard as a fair reflection of the quality of the products they are buying, and perhaps devaluing the excitement of buying a specific brand?

Price anchoring is an important feature of the behavioural patterns of consumers - I wrote about it in June with a blog about the pricing of the iPhone. - for products such as jewellry, designer clothing, the best seats for the theatre, perfumery and bespoke furniture (there are many other examples) the first price you experience for a product when you enter the market can act as an anchor for what you might be prepared to spend the next time around. The luxury retailers will want to avoid a situation where an eventual economic recovery might start with consumers having lowered significantly their price expectations for discretionary purchases.

Perhaps that is one reason for the invitation-only events for regular customers. The luxury shops are happy in the current climate to offer a generous discount but they want to keep it under wraps reserved for people who they know will return when demand and prices are back to normal levels.