How the ‘law of more’ makes discounting worse

Retail is plagued by discounting, and the reason for that is because retailers have ignored the paradoxical ‘law of more’.

The more roads you build, the more cars you have, because you incentivise car travel.

The more you reward participation, the more you get ‘mere participation’ because you devalue winning.

The more sterile your environment, the more susceptible you are to disease, because you ‘incentivise’ the powerful bugs.

Is there a pattern there?

Consider education: By making more education freely accessible, it has become worthless.

Internet tycoons promoting dropping out of college is not a sign of a society that values education. Homeschooling is growing. STEM education is struggling, while the intellectual equivalent of flower-arranging classes flourish.

We are actually getting dumber. Literacy rates are declining. Though difficult to quantify definitively, educational progress has stalled, despite it being freely available in most developed countries.

More education should lead to more educated people. But the paradoxical impact of the law of more, is that the more freely available you make education, the more diluted it becomes.

Retailers have been living on a diet of discounts for a long time. The intention was to make people aware of the value of the offer, but paradoxically they have become immune to it.

We used to say that discounts have become so common that people started to expect them, but in fact, discounts have become so common that people don’t even recognise them.

We encouraged consumers to become less discerning. We incentivised cheapskates, so we got cheapskates. But there is a fix.

Some people argue that the horse has bolted and that we will never be able to re-educate the customer. It is true that retailers will never succeed to do this in a coordinated manner.

But we don’t have to, because the market is doing it for us.

Consider the retail formats that are growing are luxury (higher end niche markets) and experiences (services and food). We can learn from this.

If consumers don’t (or can’t) discern the value of products, we have two options:

  • stop selling ‘products’

  • don’t compete on dollar value

Stop competing on price

Low margin businesses demand high turnover, which means there are rarely more than a handful (often one or two) ‘winners’ per category. Discounting is indeed a race to the bottom, and the winners (like Costco, Walmart, Amazon) are already emerging.

The curve is your enemy or your friend. Consider a product with a gross margin rate of 50 per cent. If you discount that by 20 per cent, you have to sell 66 per cent more by volume to recoup the lost margin dollars.

Price competition is a lazy form of retailing. Although to be fair, there is a time and a place for discounting to manage cashflow or to buy marketshare.

Servify your products

Two of the smartest business model pivots are to productise your service and to servify your products.

Take a leaf out of the software industry’s book. Instead of selling software products on CD ROMs, they developed software-as-a-service.

One traditional retailer already going down this path is Patagonia. Look deeper than the company’s well-known don’t-buy-this-shirt narrative, and really understand their business model.

Comments

5 comments

  1. Veronika Birnkammer posted on October 2, 2018

    An interesting and challenging read. I would agree with the general point around the retail industry, conditioning and the challenge of -reconditioning and breaking the downward spiral of discounting. However the "parallels" the author sees to things like education don't make sense to me at all. This sentence particularly strikes me as not well considered: "By making more education freely accessible, it has become worthless." In fact, it is the societies of countries where education is NOT free and becoming more difficult to access without the necessary funding that don't value education as much anymore. Looking to countries like Germany, France and many more countries where education is free or associated with minimal cost - the kind of education a person gets matters a lot more . A degree there still comes with a perceived value attached to it, whereas in the US, Australia it has lost a lot of meaning. Education is valued, when and where it is earned in intellectual quality and work, not paid for. reply

  2. Dennis Price posted on October 3, 2018

    Hi Veronika Understand what you are saying, but the reality of the matter is that by making education free & accessible to all, it has to be dumbed down to accommodate the lowest common denominators. (Some US schools now have a policy that 50% is the lowest possible mark, even for work NOT handed in for assessment.). We used to have to learn Latin/Classics in school, now they 'critique' pop-culture movies in English lit.) If you don't like the that analogy, think about entertainment. The more that entertainment is freely available (or progressively cheaper) and more accessible, the quality of the entertainment reduces. The point being that when you chase MORE of anything, it does rarely improve the quality. Discounts used to be a way of making more money by boosting turnover, but now that is increasingly becoming less effective. Cheers reply

  3. Desmond Lee posted on October 3, 2018

    Hi Dennis, Very interesting read, however I have to agree with Veronika that the education part is not really a fair statement. "More education should lead to more educated people. But the paradoxical impact of the law of more, is that the more freely available you make education, the more diluted it becomes." I understand your argument of "lowest common denominators" in the comment, however it seems like you are applying only to the ones who is attending school but not applying to the whole population. I believe in general population size, there are certainly more educated people now days than before where schools are not freely available and not as accessible. And also, it is not fair to describe doing well in English Lit back then means they were more educated. Don't forget there are not as much subjects/topics to learn when schools are not freely available/accessible. You may as well define your meaning of "Educated", because you can judge a fish is useless just because it can't run, or a monkey is slow just because a bird can fly...etc. Everyday we are now discovering that people can be talented in more ways than yesterday. Who would have guessed people can now even study in playing games and being the top players can earn significant amount of money too.... so... I guess it is really hard to define what "well educated" mean. reply

  4. Dennis Price posted on October 4, 2018

    (Education was merely an example of the phenomenon. But is is valid as ab example?) I will let the facts speak on that https://www.sciencealert.com/iq-scores-falling-in-worrying-reversal-20th-century-intelligence-boom-flynn-effect-intelligence reply

  5. Desmond Lee posted on October 4, 2018

    It is definitely valid as an example. I actually agree to your argument of "lowest common denominators" but I assume you are comparing only the population that have attended school. And no doubt those people that can attend school when education is not as accessible are truly the ones that are talented or passionate to study. Where now most countries consider studying in school is compulsory and so in will drag down the average. By the way, sorry if I look like just arguing... but here is my facts: https://www.medicaldaily.com/iq-test-accurate-way-measure-intelligence-or-are-mental-abilities-something-you-cant-put-297244 reply

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