Why You Should Discount Discounting

RAPAPORT... It used to be that price was determined by supply anddemand. That's no longer the case; price is now used as a marketing tool todrive sales. In a world dominated by the likes of Amazon and Zara, today'sconsumer is motivated by low prices and fast fashion. However, the assumption that fine jewelry retailers andbrands should adopt similar competitive pricing or discounting strategies isshort-sighted. That approach has resulted in consumers' disenchantment withfine jewelry, weakening demand. Pricing impacts revenue. It has long-term effects on thecompany's profitability, consumer behavior, and the health of our industry as awhole. When the power to make promotional and pricing decisions lies in thehands of marketers who are incentivized to meet short-term, gross-revenuetargets but are not accountable to a company's long-term growth, the entireindustry suffers. Sell the dream, not the commodity Commodities like oil, steel or gold are still pricedaccording to supply and demand. However, pricing for luxury goods like watches,jewelry, art and wine is influenced predominantly by created demand, and to amuch smaller extent, supply (i.e., availability, exclusivity, rarity).Marketing and branding are what create that demand. An art gallery would neverprice a painting based on the cost of the paint and canvas, nor would avineyard price a bottle of wine based on the cost of grapes that year. Oncecraftsmanship, design, skill and branding are removed from the conversation,the consumer loses the desire for the product, because we've trained them tofocus on price rather than on the dream they're purchasing. Leave the "everyday low price" approach to the consumer-goods sector The "everyday low price" strategy works for retailers likeAmazon, Walmart and Costco because of the frequency with which people buy consumergoods - detergent, toothpaste, etc. Such retailers make small margins on eachproduct, but make up for it in sales volume. People simply don't buy jewelryfrequently enough to support a low-margin, high-volume pricing strategy.Without margins or high repeat sales numbers, jewelry retailers don't have thecash flow to invest in marketing to cultivate awareness, create demand andincrease profitability. When retailers compete to offer the lowest prices,wholesalers' margins come under pressure as well. They turn to lower-qualitymaterials and production to increase profit, and the overall quality andintegrity of the product suffers. Consumers are inundated with mediocre jewelrythat all looks the same, and this further weakens demand. Protect your brand equity by avoiding secondary sale sites Periodic discounting or selling on resale sites like Gilt,either to get rid of inventory or to sell more volume at lower margins, is ashort-term fix that will drive your brand into the ground. Consumerexpectations and behavior are very difficult to change once they've been set.Once customers know something will go on sale, they become unwilling to buy itat the regular price. A brick-and-mortar retailer might not be as concerned, butwhen a single Google search shows a customer that a particular brand of jewelrywas sold on Gilt for a third of the price, the chances of her buying jewelry atfull price decreases exponentially. The retailer or brand becomes increasinglydependent on discounting to drive foot traffic and purchases, and the samedestructive cycle repeats itself. Reinvigorating the jewelry industry What can we do? Rather than focusing on competitive pricingand discounting, retailers can create experiences and provide services that addvalue for their customers to keep them engaged and coming back. Wholesalers andbrands that have been sacrificing quality to increase margins should invest inskilled designers and good craftsmanship to produce unique collections that useless material, and add a direct-to-consumer point of sale. Finally, rather than looking for what we can cut to surviveas individuals, let's focus on where we can collaborate, innovate and invest toreinvigorate our industry. Jean Z. Poh is the founder and CEO of online designerfine-jewelry platform Swoonery, and a strategic advisor within theindustry.This article first was first published in the June 2018 issue of Rapaport Magazine.