Living in a discounted world

Sales and special deals are changing the way consumers engage with brands

Everybody loves a discount. Be it festive offers or clearance sales, all of us, at one time or the other have deferred our purchase simply to avail a discount on our favorite brand. From queuing up before the discount store at the crack of dawn, fighting our way in and literally pushing to get to that coveted piece being sold at half price, we have done it all. Only now, we have one more channel that has opened up to satiate the seasoned shopper - the Internet.

According to a CII 2015 Report, the Indian e-commerce industry is expected to grow to over $60 Billion by 2017, making India the fastest growing e-commerce market in the APAC region. However, in terms of volume sales, e-tailing still accounts for only 0.9 per cent of total retail sales.

This presents an amazing opportunity and needless to say, e-tailers are leaving no stone unturned to lure customers; the most popular tactic being used being discount sales. While offline store discounts follow a predictable pattern of festive offers and year-end sales, the increasing penetration of e-commerce has seen a new dynamic emerge. Today, discounting has become almost a daily phenomenon online, going by the deals announced by market aggregators like Snapdeal, Flipkart or Amazon. Discounts have also peaked to unprecedented levels, touching as much as 85 per cent - unheard of in the times when brick-and-mortar retail stores were the only stop for shoppers.

What is the effect of such deep discounting on consumer behavior and the consumer's perception of the brand she is buying (in other words, the manufacturer brand)? To understand this, we undertook an informal survey among online shoppers across product categories. Among our key findings are:

• Many consumers are willing to wait for a discount before making a purchase - wait time ranging from a week to a month.
• Majority prefer to buy a large, well-known brand that is offering a smaller discount than a smaller brand offering a larger discount.
• Most respondents said they would not mind owning a heavily discounted product or advocating it among friends and family
• In case of premium brands offering heavy discounts - even as much at 80-90 per cent - majority said they did not feel it affected the image of the brand.
• Most online shoppers do not suspect the quality of the product even when a well-known brand is selling at a heavily discounted price.
• Most shoppers said they would continue to purchase their favorite brand even if it was heavily discounted because they trusted the brand.

The last two findings may seem somewhat surprising, since heavy discounting has always been believed to erode the equity of a brand in the market. Apparently, this rule is being overturned in the case of e-commerce! Brand trust and customer-friendly return policies are driving sales with almost negligible impact on perception of quality, brand loyalty, brand advocacy and brand image.

The survey suggests that online marketplaces are redefining the rules governing brand perception and brand equity. But even if the image of manufacturer brands is not being eroded to any great extent, what is the impact of such frequent online discounting on the profitability of the manufacturer brands?

Sandhya Shama Rao
General manager, brand and business strategy at Vertebrand Management Consulting