Businesses blink first
Although external forces (such as consumer confidence, perceptions on the strength or weakness of the economy, etc.) impact spending, businesses need to understand that they have played a significant role in "teaching" holiday shoppers to delay purchases later in the holiday shopping cycle by actually rewarding them for waiting to shop. Consumers have learned that businesses will offer incentives to buy (sales, coupons, free shipping, increased store hours, gifts for purchasing, etc.) and they just need to outwait retailers. Shoppers have learned that the retailers will blink first.
Now that shoppers have learned this, it will be difficult (but not impossible) for businesses to alter consumer expectations.
What can be learned for 2008?
There are two routes businesses can follow: (1) continue the current trend to battle for consumer spending predominately via incentives; or (2) attract buyers by offering truly distinctive products and services that are more immune to price/incentive-based buying.
A downside to shopper incentives is that to be effective they must continually be bigger and bigger. Otherwise, today's incentives are beat by competitors who increased their incentives to increase their sales. It is a ruthless cycle.
The second option is not easy (or even possible for some business models)... but the rewards are significant. Some examples of distinctive brands/products that have weathered the price/incentive onslaught of the 2007 holiday shopping season include Nintendo's Wii and Apple iPods. This was accomplished by having products that were uniquely different from competitive offerings that were not over-inventoried (Wii) and by redefining consumer expectations of design and style (Apple iPods). However, this option is not just for big businesses. A local bookstore minimized the use of incentives by offering superior customer service (in this case an extremely knowledgeable, well-read sales staff) that attracts and retains buyers.
The question to ask is how can your store, product and/or brand start making your offerings more special in the eyes of customers and, therefore, less subject to the mandatory incentives cycle.
It is not easy or quick, but the results are worth it. The time to start for the 2008 holiday shopping season is now.
Although this entry focuses on the holiday shopping season, the issue of the over reliance on incentives to stimulate sales is year-round.