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Can Retailers Afford Such Deep Discounting?

Dr. Stephan Liozu examines the negatives of deep discounting in retail.

Here’s an eye-opening statement from NRF’s Chief Economist, Jack Kleinhenz: “The top line is fine — the bottom line is going to be the issue for retailers”.  As yet another holiday season wraps up, and a deep sigh of a relief is heard across all retailers, we ask ourselves – were profits as high as they could have been? U.S. retail sales rose 3.8% during the 2013 holiday season; however, according to NRF’s Kleinhenz, the deep discounts that some retailers dished out to drive traffic to their stores also slashed profits significantly. And as if this wasn’t consequence enough, an additional danger is added to the mix – consumer dependency. Shoppers become accustomed to specific price points at certain stores and if they’re not finding their products at their preferred price point, they will shop somewhere else. Often, major discounting only exacerbates irrational pricing behaviors.

 As a business leader, I am perplexed by the “race to zero” mentality and the misperception that price intelligence is one of the main culprits. Price matching and all out price wars can be effective short-term tactics, but should never be considered a long-term strategy. Price intelligence is about boosting your revenues and margins by identifying those underpriced items in your assortment, and knowing where and how to capitalize on your competitors’ weak spots. As well, price intelligence can help identify and eliminate those unprofitable items in your assortment once and for all.

Here’s your bottom line: discounting is a quick fix. Yes, it may be helpful to boost sales and drive traffic temporarily, but your margin and profits will take a hit. Learn how to leverage price intelligence for gain, not pain. Register for this upcoming 360pi webinar to learn how different retailer pricing strategies and tactics observed this past holiday season translated to their financial performance.

About the Author
Stephan Liozu is the Founder of Value Innoruption Advisors and specializes in disruptive approaches in innovation, pricing and value management. He also has a Ph.D. in Management from Case Western Reserve University and can be reached at