This is Lester Wunderman – who coined the phrase “direct marketing” – and to whom I almost sold my agency.
A few years ago he and I sat on an American Express committee which met in exotic places to discuss their creative work.
Lester said little, but it was always relevant. As you might expect, I said a lot and hoped some was relevant.
I have never forgotten one thing he said when we were discussing discounts at a meeting in Kyoto. “You are training your customers to expect bribes.”
This struck me because I had already seen impeccable research by Professor Ehrenburg and Alex Biehl of the Ogilvy Centre for Research proving that those firms which advertise most and promote least are infinitely more profitable than those who do the opposite.
By promote, I mean giving things away in exchange for sales.
When you keep discounting, you are not just training people to expect bribes; you are telling them “what we offer is not good enough to sell on its merits.” You are degrading your brand.**
Which brands have demonstrated this best over the last 30 years? People like General Motors, Ford and Chrysler. All ended up in deep doo-doo.
Which brand has been losing share – and may commit slow hara-kiri if it doesn’t change its approach? Dell.
Every single message I get from them offers a deal, which over time implies that their products are not good enough to sell on their merits.
Moreover, there is no attempt to speak to me as an individual. This says they don’t care about me – another subject worth your consideration.
Fortunately for Dell most of the other computer firms have not been that good at marketing: product innovation has always driven this industry. But this will change. And Dell is worried: they’ve just abandoned their sell-direct model and done a deal with Best Buy, the biggest U.S. dealer.
In some markets discounting is part of the scenery. One of our clients is in such a market. They are succeeding because they are simultaneously running commercials to promote their brand.
What is the solution?
If you have to discount, always say something that strengthens your brand. Explain how what you do is better than what others do. Don’t just focus on the discount.
Also, keep doing brand advertising as much as you can; and measure your results, not just in sales or enquiries, but in attitudes to your brand.
** Nearly all the “I’ll make you rich by next Tuesday” internet scamsters constantly offer unbelievable discounts. They don’t give a hoot about building a brand, any more than Bernie Madoff did, as they don’t plan to stick around, but their approach hardly builds credibility.
Yes, discount marketing is destructive! The major magazine brands have, alas, been giving discounts and free trials for years, through the biggest and longest boom period in the UK's history. Now they are stuck in this recession because they can't discount any further. Scarily for them, they have nowhere to go now, except to sell benefits and build their brands. (Which they seem incapable of doing). If you want to see the kind of bad copy the big publishers come up with, see the examples here (these pages are the most popular on my website. Why is that?):
http://www.subscriptionsstrategy.co.uk/category/Bad-copy/
Drayton, that is some of the wisest marketing wisdom I've read for a long time…. very timely for me as I consider my own brand and business longevity within one of the niches I am building a business within, always love reading your pearls and a big thank you for making me think.
What about http://www.dfs.co.uk? They seem to go from strength to strength and have been able to sustain a seemingly indefinite half price/must end this week promotion. In fact you just assume you're going to get a good deal and to be honest, you do. Their sofas don't look any better than anyone else's – it's all in the perceived deal.
The answer, Matt, is simple. If you are in a market where everyone discounts, he who discounts best does best. But if you are the first to not only discount but also do some brand building, you will do even better.
Drayton, having worked on Dell's business, I'd say they lack a
strong brand. Perhaps that's because they don't do much brand
advertising? They have excellent products, but hide their brilliance.
What does Dell's name mean? What brand property or values do you
associate with it? At least rivals HP have an idea – innovate.
I agree with your point about discounts degrading brands, but doubt
that Dell has much of a brand to devalue.
Drayton – you are right about Dell.
I used Dell for 10 years and they had a good reputation. I no longer hear people saying great things about their technology, prices and especially not about their service. So, if it comes to price I'll buy elsewhere and if it comes to quality I'll buy elsewhere – this month I bought a Sony Vaio, couldn't get a discount, just the best spec for a [very high] price. Dell needs to raise its brand perception in all areas.
On discounting, Dell seem to use a random price generator as often was the case that I'd spec a laptop and be offered different prices for the same components each time I visit. If I missed a great offer this would put me off buying.
So I agree, that Dell's approach did train me to never want to pay their retail price for anything and to wait or search for an offer or to simply not purchase.
OK – that confirms it: Dell is one of the world's leading trainers.
There is always a bright side…
Drayton,
Wonderful post, as always. Discounting always seems to be the first resort of the inept marketer and, as you point out, it trains people to expect them.
I'd suggest there's a deeper and related issue that you touch on when you mention the car brands. That is, these companies have failed to adequately differentiate themselves.
One of the great benefits of a compelling USP or differentiated position is that you give people a reason why a higher price is justified and, in fact, a bargain.
Poor Dell! I've always admired Michael Dell but looks like the company didn't really have a business, just a distribution channel (to paraphrase Jay Abraham talking about a company that only had an ad). Now that everyone can be a direct marketer, they're not left with much. Every time I look at one of their products, it's simply not competitive with other (albeit lesser known) direct vendors.
And yes, computer companies seem to be terrible at marketing. I recently replaced my trusty but ageing machine that I was very happy with. Bought the replacement from the same vendor despite the fact that I had NEVER heard from the company again after the initial purchase. Imagine the sales they're missing.
Thanks again for a great post (love the BMW post too!)
Michael Masterson, in his Early to Rise newsletter says branding 'can't be combined with direct marketing':
1. What is branding? It's selling the name of a company or product through general advertising — so that later on, when the customer is faced with buying your product versus another one, he chooses the brand he is familiar with.
2. Can it be effective? Not for small businesses.
3. Can it be combined with direct marketing? Not really. Branding is meant to make selling (either direct selling or retail selling) easier. It is not meant to be used simultaneously.
God forbid I should disagree with Michael though I did make a 60 minute speech to 2,000 people in Belgium four years ago in an attempt to settle this matter. Rather than bore you with the detail I will merely quote someone rather smarter than either of us. My favourite client ever, Victor Ross, former Chairman of Readers Digest Europe once took the rouble to point out that the Dgest built one of the world's great brands entirely through direct marketing. I do not believe Amazon has done any brand advertising either. I could go on, and sometimes do. A brand is built, above all, by what you do, not what you say. In a small market certain establishments can certainly become brands.