October 23, 2008

Discounting and Brand Equity

Posted by Bizaholic | 2:57 PM | , with 2 comments »

Tough times, whether in form of economic downturn or increased competition, throw big challenges on brands. It is much tougher if the brand is a market leader. In these tough times, to meet the expectations for growth and market share, marketers have a tendency to resort to techniques like coupons, freebies, offers, etc. But is it the right approach, particularly in light of long term impact on brand equity?

Discounting your brand is a tricky thing. It is addictive for the consumers. You give it once and they will ask for it always. In the process, the long term brand equity is hit hard as in the subconscious mind of a consumer, quality is to a large extent a function of price. Higher the price, better is the perceived quality and visa versa.

If you are a strong market leader or established brand, avoid discounting your brand through freebies, coupons, discounts, etc. Discounting hurts established brands with established quality more than new or struggling brands. New or struggling brands often tend to run discounting programs for longer duration with an intention to eat into the marketshare of established players. They may get a short burst of sales, but discounting never helps them to build a brand. Brand building is all about building affinity rather than bribing its way to consumption.

But sometimes due to category dynamics or macro economic environment, discounting becomes unavoidable. In such rare circumstances, keep in mind the following:
  1. Use it as a tactical weapon rather than as a strategy.
  2. Use it only for short durations.
  3. Be innovative. Instead of simple discount, try working out cross-promotion or any other such idea that gels with your brand and which enhances rather than diminish your brand equity.
  4. Don't use deep discounting.
  5. Communicate in terms of percentage rather than absolute value. Even when using percetage, avoid easy to remember values like 50% or 25%. Instead use something like 22% or 31%. The idea is to make it harder for consumer to remember what discount you gave her the last time.
  6. Clearly communicate the purpose of discounts. Make sure the purpose in no way dilutes the brand equity or quality perceptions.


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