For luxury brands, there are three key promises that must be adhered to in order to justify pricing strategy and maintain luxury status: quality of products, exclusivity of offer and a superior customer experience. These three pillars are the foundations upon which any luxury brand is founded and, at first, seem to be at complete odds with everything offered by online voucher code websites.
Online discount codes are accessible to all, easy to implement with a few clicks of the mouse and aren’t always vetted in terms of the quality of the product offering – after all, the old saying “you get what you pay for” often still rings true. Here is an arena where brands are seemingly fighting for consumer attention offering a temporary price reduction with the intent to increase sales over the short term – but at what damage to long-term brand status?
In a modern, commercial society, the perception of luxury brand quality may not be as fixed in the mind of the consumer as the producer may think. When pricing is tampered with, the three pillars of a luxury brand start to wobble – why has this discount suddenly become available? Are these products of lower quality? Is the brand discounting due to poor sales? Is it therefore no longer as exclusive and aspirational? If you start playing with discount, you’re sending a signal that you don’t believe your product or service is worth it. And if you don’t believe it, who will? The customer will soon, in a “value rebound”, begin to perceive the everyday price as unjustified and much too high. In turn, loyal users who would have bought product at its regular price are disgruntled and the brand must reward their purchase; again, at the expense of their margins.
The above suggests that entering the online discounting market is therefore not part of a viable marketing strategy for luxury brands. Indeed, in raw, flat discount form there is a high risk that the brand’s luxury status is undermined and devalued to a position of no return.
However, as the market evolves, luxury brands may need to start to participate.
Shoppers to date have not expected the highest tier of luxury brands, the Guccis, Pradas and Chanels of the world, to be involved with online voucher discounts – moreover, many worry that any of these discounts are for fake copies and a mere online scam. In 2011, bolstered by growth in China and other emerging markets, both LVMH, the owner of Louis Vuitton, Bulgari, Fendi and other top brands, and PPR, which counts Gucci, Yves Saint Laurent and Stella McCartney among its brand offerings, posted sales increases of over 20%, with little interest in discount strategies and little reason or need to get involved with online voucher sites.
However, this sort of growth has started to relax. Mainland China’s luxury goods market has slowed from 7% growth in 2012 to around 2% in 2013, with expectations of similarly slow growth in 2014, according to the 2013 China Luxury Goods Market Study released by Bain & Co. With this in mind, these brands’ traditional strategies may need to be reassessed.
Research by Forrester has shown that whilst not the core target market, High Net Worth individuals are in fact using voucher codes (appendix B). Indeed, for online discount code users ahead of Christmas 2012, people earning at least £60,000 accounted for more than a fifth of purchases made using money-off vouchers. Is it not time that luxury brands started to look at the advantages of partnerships with online discount code sites, and how best to use these sites without resorting to potentially brand-damaging, flat discounts?
Offer experiences, not discount
With experiences, or rewards for shopping, consumers can feel incentivised to shop or to dine as well as increased brand loyalty. Rather than flat discount on a five course meal, offer a free glass of Champagne or the chance to meet the Chef; for retail perhaps a notable gift with purchase or if a certain product is bought, offer an experience that relates to this – spend X amount on luxury beauty products and enjoy a voucher for a free beauty treatment, for example.
Tie in with existing discount strategy
As the world of discounting matures, luxury retailers must continue to reserve the ‘single event’ discounts to deliver secondary metrics (like clearing last season’s stock), rather than as a driver for month-on-month sales. Many luxury brands do have seasonal sales or outlet sites, so even simply advertising these already-in-place promotions on online voucher sites will broaden awareness and bring new business – a potential 5 million new customers…
Use for increasing outreach and expanding contactable database
By introducing a data capture step and automatic opt in to brand communications between code redemption and successful checkout, the use of an online discount voucher can be used primarily as a data acquisition activity, with discount applied set off against CRM budgets for this activity and therefore not heavily affecting margins.
If (and as a luxury brand it really should be) your customer service is what sets you apart, then use presence on these sites to shout about it. For example, as a retailer do you offer next day delivery? Why not offer this as a free service with a voucher code to showcase your superior customer service (with high quality packaging and excellent dispatch communications too, this is a real incentive for customers to look to you when next shopping online as they remember the experience).
Research has shown that ‘Stretch and Save’ vouchers such as £X off all orders over £X amount, can help raise average order values and reduce frequency of abandoned baskets. Additionally, bonus, repeat custom deals, that also cross departments (e.g. buy a women’s scarf (fashion) and receive a free sample of a new exclusive lipstick (beauty)) provide an enticing incentive and in turn hopefully encourage the customer to return and purchase the full size lipstick, without devaluing the brand.
Customers will always look to take advantage of a discount coupon which is offered, but in order to return to purchase items at full price, they must have (and must maintain) a positive brand image of the business. Most luxury brands have this advantage and should not jeopardise this with quick-win discounting for easy sales. Instead, by using online voucher sites in a non-traditional, forward-thinking way in order to increase sales, luxury brands should recognise that these sites can be effectively used to track their customers, leverage discounts, construct meaningful affiliate relationships and much more besides.
Luxury brands were slow to jump on the ecommerce bandwagon; let’s hope they aren’t left playing catch up again.