Aussie retailers discounting to disaster: report

| April 11, 2019

Discounting is considered the bane of many retailers’ existence. Yet, are retailers’ slaves to discount-demanding consumers, or have they created these ‘discount monsters’ themselves? Have they trained their customers to think that if a product they want isn’t on sale, it’s just a matter of time before it will be?

Power Retail, the number one resource for Australian Online Retail Industry insights, content and news, examines this topical issue in their latest Spotlight Series report, a monthly deep-dive paper on leading-edge e-commerce trends, titled ‘Discounting – A Race to the Bottom?.

The nationwide research initiative surveyed over 5,650 Australian online shoppers and retailers to uncover a profit-sucking sea of discounting.

Managing Director of Power Retail, Grant Arnott says the most frightening statistic for retail is that only one in four online shoppers are comfortable paying full price online, with 73% of online shoppers stating that most or all of their online purchases are discounted items.

“The genie is well and truly out of the bottle, as consumers have now become conditioned to purchasing only on sale.

“Another alarm bell ringing out of this report is that promotions outside of discounting such as free shipping and free returns are no longer perceived by shoppers as value-adds, but instead are expected to be baked into the purchase price. The pressure on profitability is extreme.”

 Other key findings from the Discounting report:

  • Only 33% of online shoppers’ last transactions were bought at RRP.
  • Overall, 80% of online shoppers engage in online price checking, with 49% of shoppers checking prices at two or more competitors before finalising a purchase.
  • Australian online shoppers expect discounts and around half would buy immediately if the RRP was discounted by 25%. More importantly, 90% of shoppers would buy the product immediately if the RRP was discounted by 50%. For those retailers discounting over 50%, this is pretty ineffectual as you can only pick up another 10% of shoppers at best.
  • Four of the main online shopping events e.g. Boxing Day, Click Frenzy etc. are experiencing annual growth in excess of 10%, with no immediate signs of slowing down.
  • Interestingly, while consumer expectations of discounts are increasing, a proportion of online retailers have successfully decreased the size of the discounts they offer.

To help retailers survive and achieve profitability without having to constantly discount, Grant Arnott provides his expert tips:

  • Be strategic about sales events: Instead of a sitewide discount that may deliver a sugar hit in sales but will kill profits, take time to select specific products to focus on for discounting. Go extra hard on those and you can find a sweet spot that is attractive to customers without killing profits.
  • Exclusive and personalised offerings: Competing on price alone is unsustainable. Retailers need to tailor their product offerings to deliver exclusive, compelling products and experiences that customers will be prepared to pay a premium for.
  • Back up pricing with excellent customer service: To gain and retain trust from customers, it’s not only about price for customers. However, if price is the only differentiator you use, it’s a game no-one wins.

According to Power Retail’s Advisory Panel of leading online retailers, many of the online retailers who have decreased their usual discount size have achieved this by adding value to all aspects of the customer journey, from website and mobile UX through to delivery and return options.

Commenting on the future of discounting, Grant says, “It’s been brutal enough for the retail sector, and the discounting race to the bottom is only going to accelerate failure if left unchecked. With the majority of online shoppers declaring they won’t pay full price, and that percentage likely to increase, it’s a grim road ahead. The defence from retailers should be differentiation, exclusivity, quality and loyalty.”