Saturday, March 23, 2013

Discounting - a Cautionary Tale

So it goes without saying, we all like a discount.  We all want to feel that we got an "insider's deal".  It is fascinating to me that we feel we shouldn't have to pay the "sticker" price for a watch.  But yet we don't bat an eyelash at paying "full pop" at an expensive restaurant.  In fact, we walk with a certain swagger when we plump up for an expensive meal - we might even overdo it on the tip.

So consider, a meal is a one time event, but a watch is something that you will have for some time.  Why have we downgraded that experience to an all you can eat buffet on the Vegas Strip?

A few weeks back I was at an event in Los Angeles and I had an opportunity to speak with several watch guys.  And inevitably the conversation turned to price, or more specifically why they shouldn't ever have to pay the asking price for a high end watch.  The logic being that the price was over inflated in the first place and they shouldn't have to pay it.  My counter argument is that they don't have to buy the watch ; )

This then led to a discussion as to who really gets hurt when a retail partner deeply discounts on a regular basis.  And this led to my sharing the all time cautionary tale of cautionary tales -

Those who may remember the Alpha Omega debacle can remember that it was pretty unbelievable - one of the most recognized retail stores in the country - and suddenly - pifff.

Now everyone loved the great deals that the Handa family gave them on watches.  Brands loved the Handas because the appeared to move a lot of watches.  But the darker side of that was that often brands were not getting paid on time, or towards the end, not getting paid at all.  So the brands, in the end, got hosed.  They lost millions because they had extended so much credit to the Handas based on the fear of losing future orders.  And I can hear some of you out there smirking and laughing.  Oh, poor SWATCH Group, poor Rolex!  Well actually yes - you're supposed to pay your bills.  When you receive products, then sell them and get paid, you are supposed to pay your supplier.  And think of the smaller, independent brands that got rooked on this deal too.  Think that all watch companies are rich, with money to burn?  You definitely have that wrong as well, a lot of brands are one step away from life-support.  And when they don't get paid, they have to lay people off, and people lose out.

Enjoy being unemployed?  Didn't think so - so why should someone else be unemployed for a 30% discount for something that you WANT - not what you NEED?

And in this instance it went beyond the brands not getting paid.  Local vendors (magazines, etc.) lost out, and in the end Alpha Omega employees - losing their jobs.  And in fact, some of the very customers who lost deposits and had to fight back to get watches back that they left for repair lost out.  In other words, the people who benefited the most from the discounts in the end were the very victims of that approach.

Circle of Life some might say... unless it's you who lost out.  Then it's personal, then it's wrong.  Think about that - what if it had been YOU?

Now here's the thing - I am not saying that all discounting is wrong - but there has to be more to it than just a discount, if that's all you want there's a beautiful Cartier and a few Breitlings at the Costco here in Goleta, sure they're grey market - but they're discounted!

1 comment:

  1. James,
    Thank you for sharing your thoughts on discounting. I have passed this on to many in my organization. Keep up the good work!