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Death by Discount: How Brands Fuel Unrealistic Consumer Expectations

Posted by Kent Lewis on October 24th, 2011 at 11:37 am

When researching an article, Groupon Comes with Dangerous Hidden Costs for Retailers, I came across a now infamous story about a Portland-area coffee shop that astounded me. In the blog post recap, a customer told the owner that they knew a Groupon had gone out that day and suggested that they cut a deal: the customer wouldn’t buy the Groupon so the owner could keep more money, and in return, the owner would offer the customer a cup of coffee at half price.

What interested me about the story was that the argument made sense financially, knowing a Groupon would cost the owner more than just giving the coffee away for half price. At the same time, the customer had an expectation of being able to get a regular cup of coffee at half price, without having to do anything (other than ask). I realized at that moment there was a fundamental shift occurring in the minds of consumers and the new-found power had the potential to erode, if not destroy, brands.

A related trend I’ve noticed in the couponing space, are the inherent complexities added to the customer experience. When trying to redeem a LivingSocial coupon at a Portland-area restaurant, we were directed to the back of the menu, which had an elaborate set of redemption rules for the various discounts available to customers. In the end, we weren’t able to redeem the coupon, as it conflicted with both happy hour and our friends’ coupon from Chinook Book. The waiter apologized profusely and I was left thinking “why are they spending so much time managing coupons when the food quality is sufficiently good that they really don’t need to discount at all?”

As Groupon and other daily deal providers (including Google and Amazon) continue to gain traction with consumers, brands seem willing participants in the discounting craze. Unfortunately, this is not the only contributing factor to the great erosion of brands. The other major contributing factor I’ve observed is corporations’ mad scramble for friends, fans and followers in social media. Essentially, brands are willing to buy prospects at relatively high costs, yet do not seem to do a good job of converting them.

In a recent article, 9 ways to Lose Friends and Alienate People in Social Media, I outline the most common ways brands actually lose fans and followers, instead of winning them. Building on that article, I’ve noticed brands are happy to “incentivize” or bribe social media consumers to “Like” or “Follow” or review them. The inherent problem with this approach is that it flies in the face of the transparency and honesty upon which social media platforms were built. Brands shouldn’t have to “buy” friends, they should “earn” them. A secondary issue is that brands do a poor job of understanding what social media friends are worth, and furthermore, how to increase their value.

I propose brands take a step back and evaluate the following components of the social media planning process, before pulling the trigger on half-baked contests and promotions:

  • Objective: What are you ultimately trying to achieve in social media? Other than sales-related goals, brands should think hard about how much they invest to attract and retain fans and followers.
  • Audience: Who are you trying to talk to? Where do they hang out? What are their communication preferences? What type of content do they like and in which deliver format do they prefer? Content should be designed for the end consumer, not corporate executives’ egos or marketers available resources.
  • Strategies: What is the best way to achieve your overall objective? Map the social platforms to the audience and objective; don’t blindly mimic social strategies of the big brands or industry competitors.
  • Tactics: How are you supporting social strategies, while maintaining brand consistency? While it is standard practice to test various tools and techniques, be aware that some tactics can have a lasting negative impact if done improperly. For example, don’t outsource your brand “voice” or hire an intern, without a full understanding of the potential liabilities.

At the end of the day, brands need to have an internal pow-wow and figure out what really matters. If it’s all about buying customers as cheaply as possible, social media and daily deals may be a good way to go. On the other hand, what is the long-term impact of the wholesale discounting of products and services, in terms of customer expectations and perceptions of your brand?

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2 Responses to “Death by Discount: How Brands Fuel Unrealistic Consumer Expectations”

  1. Very thoughtful article. I still believe in brands. One brand example that has stuck by its pricing guns would be Apple.

  2. Kent Lewis says:

    Good point... Apple, Starbucks and other select brands do not discount as a rule. It has done them well and I hope others follow suit, but alas the premium nature of those brands isn't for every product, service or industry.

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