Doc Searls posts about asking Lee Scott, CEO of Walmart, why Walmart succeeds where Kmart failed. Lee Scott's answer is "coupons". Kmart's story is a good example of an established company using coupons to prevent loss, but not recognizing the risk of losing more.
Doc goes on to talk about an example of a Groupon success failure offering discounts to a coffee shop - a great example of a new media company and a small business "aping" big companies' use of discounting at great unrecognized risk. The Coffee Shop nearly went bankrupt.
I'm taking the story further to reemphasize the risk of using coupons because both new media and even traditional media ("addressable advertising" for example) are all about distributing coupons to tap budgets previously dedicated to FSI's and CRM.
I understand the allure of coupons. There aren't many other linear, direct, and measurable ways to impact sales. But there are two problems with this idea. First coupons and temporary discounts have, as Doc points out in his two examples, unrecognized risks for the brands. Second, there's an inherent reason - sales is not a linear or direct process.
Coupons and temporary discounts can work in the short term. The unrecognized risk is that discounts shrink the market and change the relationship between the brand and its customers.
K-mart used coupons to take share from competitors. And, of course, competitors responded with their own coupons. This vicious cycle shrinks the market. Because once people get used to paying less, they wait to buy stuff when it is on sale, driving revenues lower and lower. They now perceive the brand as an adversary in a game. For example, they feel "cheated" if something they bought today is discounted tomorrow.
Next the retailer lowers the quality of the inventory in order to eek out a profit from the lower unit price. The market continues to shrink as disappointed customers simply stop playing the game.
Enough of what's wrong with coupons and what media shouldn't do. Importantly, why did Walmart succeed while Kmart was failing? And what could media do to tap into budgets reserved for predictable, albeit very low (1-3%), FSI and CRM response rates?
Walmart went into rural markets where people didn't have access to as much choice at affordable prices as people in urban areas and suburbs had. When Walmart made it possible for more people to improve their quality of lives at reasonable prices, they grew the market. When Walmart starting entering these suburban and urban markets - with better inventory at consistently fair prices than KMart, people bought unplanned stuff without a coupon or a discount. The market grew.
[Did Walmart hurt small, local businesses - sure! But did those businesses compete with Walmart by lowering prices or did they shift gears and aim to fill a void left by Walmart - for example, more select, locally relevant inventory that locals would pay a premium for?]
Back to the point. When you expect linear, direct, short term sales results - to generate "numbers" - you aren't selling. For example, a friend tells the story of the sales guy who tells his boss that he had an "ok" day because he only made 30 phone calls instead of the normal 100 because the 30th person asked him what he was selling and he got into a long conversation with him.
Selling is a zigzag process. It is not just a matter of one tactic all the time. It's looking for signals, listening, getting the timing right, pitching and getting "no", changing the context, listening, pitching, overcoming objections, etc. As a sales person knows, what you hear from a customer in a business environment may be very different than what you hear after a couple glasses of wine over dinner. That's why business has a budget to entertain customers.
Media has the opportunity to be a better marketplace for entertaining customers, hearing what they intend to say "in context", and offering what they aspire to.
