From Fashionistas to Frugalistas: Why Discounting, Couponing and Flash Sales Will Remain Key to Consumer Spending

09/20/2011 08:33 am ET | Updated Nov 13, 2011
  • Jill Puleri Global Industry Leader, Retail Global Services, IBM

The retail outlook for the holiday season is fairly encouraging: sales are expected to increase 3.5% for November and December, according to a projection from the International Council of Shopping Centers. Not bad during a year of anemic consumer spending, stubbornly high unemployment, natural disasters, astronomic gas prices and a squishy-soft housing market.

If retail sales do indeed climb, it is in no small part due to deep discounts, promotions and sales. September sales numbers are not available yet, but early indications from the first weekend suggest they were healthy, and mostly driven by Labor Day promotions and sales.

It's not entirely clear when or how the nation will recover from the Great Recession, but there is at least one semi-permanent side effect: Consumers are no longer willing to pay full price for almost anything. Cost has become a critical, deciding factor for most purchases. A recent survey conducted by IBM found that 41% of respondents changed their minds about buying something in their baskets (or online carts) before completing a transaction, largely because of cost. In some cases, shoppers found the same product for less online before they made the purchase.

While the economic downturn has conditioned shoppers to wait for bargains, technology has empowered them to find them: Consumers now regularly use -- and rely upon -- a variety of tools (including mobile phone apps, price comparison web sites, online product reviews and virtual flash sales) to ensure that they get the best possible deals.

The upshot is that retailers cannot afford to launch a promotion, cross their fingers and hope that it works. They have to know that it will. Most retailers by now should have a decent understanding of their customers' needs and how they shop. Promotions and sales need to be tailored to individual customers. A hot deal on diapers, for example, should not be emailed to a 45-year-old woman who regularly buys teen boys clothes.

As an added challenge, customers have become somewhat marketing-resistant. They aren't loyal, and they don't want an ongoing dialogue with their friendly neighborhood department store. (In fact, 59% of respondents to the IBM survey said they won't give retailers their primary email address when asked.) Where consumers once trusted manufacturers and stores to provide honest information about a product or service, they now consult friends and family in their social networks about a product or read reviews online before making a purchase.

Those customers who do connect with retail brands on social sites such as Facebook or Twitter aren't looking for a warm and fuzzy relationship-- they want exclusive deals, discounts or trial offers. There has to be something in it for them. They want to offer feedback on their shopping experience or even a place to gripe.

Although it seems as if shoppers hold all the cards in the current environment, data analytics provide retailers a powerful defense against the frugal, flighty customer. By collecting real-time data about consumers' shopping -- and browsing -- habits online, retailers know what individuals want. Combined with data from in-store purchases, they get a detailed picture of shopping habits, and by extension, customers' lives. Using historical data, retailers can offer unique deals that prove they understand their individual customers and reward those customers' loyalty accordingly.

Sometimes winning customers over is as easy as asking them what they want. An impressive 53% of survey respondents said that they buy more from retailers with whom they interact with online. Among those, 13% said the increase in spending with those retailers was significant.

Although these are difficult times, retailers can emerge from this period with a stronger relationship with their customers and a better ability to anticipate their needs, thanks to the technology available today. In the end, the customer isn't just right, he or she calls the shots, and retailers are now in a position to oblige (most) of their whims.

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