Full-Price Customers: How to Get, Keep Them

The refrain from retail CMOs has been consistent and almost deafening. They say: “We don’t just need more customers, but the right customers.”

Full-price customers, Mike FerrantiThe refrain from retail CMOs has been consistent and almost deafening. They say:

“We don’t just need more customers, but the right customers.”

“We need to grow margins.”

“We need to reduce our dependency on discounts.”

Even during this year of economic recovery, luxury brands in particular have been seeking to improve margins and sales by selling more full-price purchases — all while retail, at large, has been crushed.

But the high-end isn’t the only one that desires full-price sales. Remember not too long ago, JCPenney infamously tried to eliminate discounting and offer a fair, low price every day? We know how that worked out.

Starting shortly after the Great Recession in 2008, as both business and consumer spending dried up, marketers were forced to adopt traditional strategies for creating incremental revenue in a difficult environment. The range of tactics deployed was extensive; yet, pricing became more important and varied than ever before.

This phenomenon, you remember, was so widespread, that an entire category was born — “flash sale” websites like Totsy, Groupon, Gilt, Rue La La and Zulily. eCommerce juggernaut Amazon came out its their “Golden Box” and more recently, ushered in PrimeDay.

The Customer Is in Control

While price cadences, markdowns and closeouts are not new, something more fundamental began happening among consumers. It was the confluence of accelerating globalization, mass adoption of the Web and the deep scarring from the recession — that began driving up savings rates and reducing debt, which appears to have infused a new ethos among consumers and their perception of bargains.

Millennials today refer to saving money as a sort of “hack.” The Internet is filled with “life hacks” and more relevantly: “savings hacks.” Even if they are spending that savings on going out at night — that, too, has spawned what may be a generational interest in getting more for their money. It’s a badge among them to find the cleverest ways to pay less and get more.

While walking to a meeting, I realized I had not put collar stays in my shirt collar. I was going to stop at a retail store on the way, and instead of Googling where to buy them as I did (I’m a Gen Xer, and that’s what I would do) a Millennial did a different search, and we stopped at Starbucks. He came out with a wooden stirrer, and snapped off a piece to fit each side. Then he started on where I could buy custom dress shirts for 30 percent less than what I was likely paying. (He was right.)

This anecdote isn’t intended to communicate how clever this was. It’s intended to illustrate a new consumer behavior, born of the intersection of rising influences of “digital natives,” mobile tech, cloud computing, and the impossible rate of change that comes with it.

If you don’t sell to Millennials today, odds are you will be targeting them soon. Today, the oldest Millennials are entering the accessible- and luxury-buying brackets, and they will take their toll on them. I’ve already worked with clients who are offering products designed to entice new buyers of their brands into trial, they are not discounted products, but new products designed to appeal to the more price-conscious Millennial. These new offerings are changing the way brands market and sell.

Existing Full-Price Buyers

Our recent internal study looked at the impact of eliminating sale items for a brand that typically sells to more affluent customers. A few things happened almost immediately:

  • With sale items gone, on-site searches skyrocketed, as the price-conscious consumer hunted for the sale
  • The conversion rate plummeted for consumers who looked for and could not find a sale
  • Full-price purchases went up as a percentage of sales — yet revenue declined

The short-term effect was that revenue dropped materially at the outset. It was essentially the same behavior of discount buyers at other organizations that abruptly “eliminated” sale pricing. The longer-term impact is still unfolding, but surely not every customer is a full-price buyer, and some will never return — unless the sale returns.

Further analysis illustrates there are at least three types of buyers when it comes to price:

  • Full-Price Buyers (price inelastic)
  • Discount Buyers (price elastic)
  • Both (buyers who consume incentives and buy at full price)

Strategies for these different types of customers range from simple to exhaustive. In short, our goal is to understand the elasticity of demand associated with each customer and the goods she purchases. The best place to start is with a simple segmentation of each of the types of buyers based on their consumption of discount promotions.

Author: Mike Ferranti

Mike Ferranti is the founder and CEO at Endai Worldwide in New York City. In this blog, he plans to offer ideas and perspective that energize, stimulate and motivate performance through the lens of his nearly 20 years of data, technology and marketing experience. Mike draws upon the logical, cultural and subject matter expertise in digital and data-driven marketing—with an occasional parallel between business performance and athletic performance.

One thought on “Full-Price Customers: How to Get, Keep Them”

  1. Great piece, Mike. A couple of thoughts:

    1) Most effective way to discourage discount buying is to not ever offer or allow discounts in the first place! Apple and Weber Grills are two stellar examples, and they strictly enforce Minimum Advertised Prices.

    2) Second best is to be very disciplined about when discounts are offered. For example, only at designated time of year (e.g. post-Christmas), or only on discontinued or prior season’s models.

    3) Retailers that offer true value-add benefits don’t have to compete on price alone. TireRack, for example, has a fantastic road hazard warranty that far exceeds that of competing tire stores.

    I believe that the retailer is usually complicit in training the consumer to buy at discount. As evidence I cite one word: MACY’S.

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