Does discount harm your brand?

Well, the whole branding proposition is rooted in reducing the price elasticity of a brand. Whenever a brand has a loyal customer base, centered around emotional attachment and uniqueness of the brand, you can command a premium price just because you have a “Brand” in customers’ minds. Now, would you line up with those not-so-known brands that give you an ugly fight with discounts?

Unfortunately, the answer is not a straight yes or no. Technically speaking, “it depends”.

If the discount by other brands is due to economic downturn, one has to see the extent that the target customers of a brand have been affected due to recession. Discounts for “Economy class” hotel rooms would make more sense during recession than discounts for presidential suits. Discounts on small cars would make more sense during recession than discounts for BMW or Jaguar. On the other hand, if the discount is offered not to match the economic cycle but to facilitate an easy entry by a new brand, the leading brand may not be worried much about it. However, in many cases, an easy entry of a discounted brand, if proved to be of higher quality and value, may pose a long-term risk to the existing leader. In that case, the premium brands may temporarily reduce prices to an extent which is still higher than the price of its competing brands, yet very close to them. It would signal a superior quality of the “Brand” vis-à-vis the lower price of the new entrant in the minds of customers.

So, should a premium brand ever initiate discount? Of course, they should. But with a limited time frame in mind, otherwise, it would be extremely difficult to signal the premium branding proposition in the market. With right mix of emotional value in a brand, pricing becomes secondary in most cases.

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About 1mmarketing

Working as Associate Professor, School of Business, United International University, Bangladesh; a North-American graduate, with doctoral studies from UUM, Malaysia; cherishing a wide-view of the world, with multiple interests in culture, people, traveling, and specifically marketing science. I have a colorful and diversified background with a blend of corporate experience, research, consulting, training, public speaking and teaching. I love to write about marketing issues that affect our lives, and talk about its direction that would promote the greatest human welfare.
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3 Responses to Does discount harm your brand?

  1. Discount means reductions to a basic price of goods or services. On the other hand, the basic motive of a company to go for branding is to charge premium (higher) price for its products. Apparently it may seem that these two are contradictory marketing techniques. However, in reality discount may sometimes help to build up and maintain strong brand equity. Basically, a company may offer discount for several reasons: to face an economic recession, to enter into a new market or market segment, to clear stock lot of an old version of a brand, to increase market share in a short term, to face the challenge of severe competition, or even it may use discount as a promotional tool of its IMC program. By this way a company may use discount in its branding strategy effectively. In offering discount of a premium brand a company has to keep one thing in its mind: it has to offer discount in a way that it does no harm to the high image of its brand. The company must convince the customers that discount will not shrink the high perceived quality of its brand. Last but not the least, to be effective discount should be offered only for short-term perspective.

  2. thank you sir for your nice post!

  3. mihir.G says:

    I agree completely with Byron Sir word by word. In addition to that, I would like to add some insights.
    Not necessarily all brands need to be premium priced. There are already established terms (for example “Low cost brand” – (Tata nano, GAP Inc.) “High cost brand” – (BMW, Armani)) in the market that can prove this point. For me brand is something that helps to communicate the value offerings to its target audience- it may focus on lower cost, better service or just for a specific niche market. (Reference: Porter’s Generic Competitive Strategies – cost leadership, differentiation, and focus)
    Specifically for this discussion, let us assume that Discounts can be termed as – “same for less”; meaning get same quantity and quality at a lower price. This discounting strategy actually acts well when the competition is between two companies focusing on cost leadership or between two companies focusing on focus (e.g. manufacturer of products for left-handed people).
    A cost leadership can never (my Philosophy is to never say “never”) be implemented directly in the brands following product differentiation in the form of “higher status value” but if tailored in a way that flows in a harmony with the brand identity of “higher status value” then it may work.
    To prove this point lets transform “same for less” into “more for same” – here “same for less” has decreased the price (customer pay less and eventually will be paid by the company in form of discount) and “more for same” has increased the cost (directly paid by the company) but not the price, and both gives higher product value than before.
    “more for the same” in implementation – here we can do some intrinsic value addition to the product; example may be Jaguar cars contributing to save tigers (or to a cause where rich helping jobless people during recession), making it very exclusive by means of marketing activities, and marketing this value addition with customers’ Jaguar cars in a way that will left customers with increased status and satisfaction of being exclusive and doing something good for the society. (Better suited for market entry)
    So, discount is obviously a short term tool that can be used in situations to boost up sales or for market entry. But not possibly can be used always in “higher status value products”. Discounts can be used in “higher status value products” but in a different form.

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