Discounting: Damaging or de rigueur?

Kelli RoddaIn late September, Restoration Hardware announced a 20-30 percent price hike. The upscale home furnishings retailer made the move to differentiate from its competitors. And it’s the opposite strategy the retailer first took when the economy started to tank. The chain’s initial decision to aggressively price promote as the economy turned down was a mistake, Ian Sears, the company’s chief marketing officer, told AdAge.

Too much discounting devalues the product, he said.

“Everyone is talking about value. It’s a code word for, ‘I’m making cheaper products,’” he told the magazine.

Quality, not quantity
Restoration Hardware is backing up the price increase with a focus on higher quality merchandise. Quality becomes the value message. The retailer no longer wants to bother with consumers who buy a rickety chest of drawers for $79.

It’s a bold move, but a smart move. This is big-picture action, not fly-by-the-seat-of-your-pants business.
It won’t pay off immediately. But as long as the retailer stays true to its plans to offer quality merchandise coupled with outstanding customer service, sales will soar.

Price accordingly
Robert Shulman, a marketing consultant, wrote a column in the Wall Street Journal in 1998 called “Discounting is No Bargain.” His words still ring true today.

“Industries that rely on discounts train consumers to think of their products as commodities. Discounting shrinks profit margins, which squeezes quarterly returns,” Shulman wrote.

Know your customers and price accordingly, he advised. Go after high-involvement buyers — ones who care about quality. Businesses that focus on the needs of high-involvement buyers can consistently charge higher prices and earn higher margins.

Ag economist Charlie Hall, chairholder of the Ellison Chair in International Floriculture at Texas A&M University, is a champion of differentiation.

“Do the uncommon thing, or do the common thing uncommonly well,” he says.

Are you ready to make a plucky move?

Take a deep breath and raise those prices.

You may sell fewer plants, but your profit will increase.