Emerging brands wary of discounting trap

21. Luke Jecks

How steering clear of discounting is proving a winning pricing strategy and enabling retailers to maintain the credibility of their offer.

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On July 12, Amazon ran the second instalment of Prime Day, an annual sales event the e-commerce giant is touting as bigger than Black Friday.

Offering deals to Amazon’s Prime subscribers, the event is designed to give sellers a sales spike during the North American summer. However, not all of Amazon’s third-party sellers are joining the party.

Aussie e-commerce start-up, Active Creatures, manufactures dance and yoga clothing, which is sold through its website, eBay and Amazon in the US. It also has a reseller network in Australia, Europe and the US and is eyeing a broader retail footprint.

Melody Townsend, who founded Active Creatures with her husband in early 2014, told Inside Retail Weekly that they decided not to participate in Prime Day this year after making the decision not to discount their products.

“Retail is just on sale right now,” Townsend said.

“There’s just so much encouragement to go cheap…we’ve decided we’re not going to do it because it devalues our brand and it takes us down into a category of retail where we just don’t want to play.”

The decision to avoid discounting follows a shift to higher price points across the Active Creatures product range, a move that hasn’t slowed down sales. “We are still selling just as many,” Townsend said.

Positioning Active Creatures as a premium Australian activewear brand in an international market requires a consistent global pricing strategy to gain customer’s trust. Since listing on Amazon, traffic to Active Creature’s website from America has doubled in the last 12 months.

“I think people see us on Amazon, are coming to our website and they are probably trying to work out ‘what’s the brand?’ and ‘what’s the price point?’”.

Consumers comparing prices across multiple online stores means pricing and promotions must be consistent across all channels, including eBay and Amazon. To avoid the need to discount excess stock, Active Creatures tightly controls its inventory.

“We’ve worked with the factories in China to get our quantities so small that we just don’t need to discount at any time,” Townsend said. “We can just keep maintaining premium price points.

“That’s the direction we are heading in, otherwise we can just see it’s a race to the bottom and we just don’t want to be part of it.”

Kiwi business, Mons Royale, is another emerging brand with an international footprint that has chosen not to participate in international sales days.

Mons Royale is an apparel manufacturer and wholesaler of high performance merino clothing that was founded in New Zealand in 2009 by a professional skier and his wife seeking a more stylish alternative to the traditional technical merino base layers.

The company began shipping international orders during its first year of business and today is available in stores across North America, Europe, Japan, Australia and New Zealand, as well as direct to consumers online.

Ben Irving, COO, Mons Royale, said earlier this year the business conducted 500 interviews with staff around Europe to get to know their customer better.

“All the feedback there is they’re not people who are going to be buying on the sale day necessarily, and they were pretty clear on that,” Irving said. “So we will have to deal with it at some point, but for now we keep well clear of it all. Not to say we don’t discount on our own terms and in our own way, just not on those big shopping days.”

Irving said Mons Royale’s international strategy is to grow into a defendable position in Europe before attacking the US market.

“As we are building the brand it works to exit stock into the US market at discount prices because the whole market there is geared to discount and that can really disrupt your pricing model,” Irving said.

“Some of the logic behind it is – we are a premium product, we want people to be paying full ticket price for Mons, we don’t want to be in discount retail.”

Getting price right

Online wine retailer, Naked Wines, also grappled with a pricing strategy when it entered the US market.

“In the US we had been offering a very cheap offer and bringing lots of customers into our business, but we weren’t seeing the stickiness of those customers like we were seeing in Australia and the UK,” said Luke Jecks, CEO of Naked Wines International.

“We were attracting Walmart customers for a Whole Foods proposition.”

The retailer then doubled the price of its introductory case of wine.

“We had to get the pricing right to ensure we were seen as a Whole Foods proposition,” Jecks said.

“It changed the quality of customers coming to the business, changed the perception of the product and it released more funds into advertising because we weren’t losing money on that first product.”

The move increased repeat customers and freed up more money to be spent on marketing and acquiring new customers.

“We tried to think of all these cool things to improve customer quality and in the end a price filter was the best one.”

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