They are soft. Subtle. And sustainable.
You know it's the end of the month in Sri Lanka now when all the ecommerce outfits and other businesses doing SMS marketing start sending in deals to try and boost sales to meet sales targets. What you may not know is that most of these deals create a loss for the company.
Ever wondered how these deals make sense when you are making a loss just to say "We achieved target of X for the month of February!"? From experience, here's how the industry works. It gets filed under marketing expenses.
If a company sells a 20k rs product for 15k and the product cost 18krs, that 3k rs loss gets marked as marketing costs. But in the reports made to upper management or the boards, the numbers are divvied up to read: "total sales: 20,000 LKR", "profit: 3,000 LKR", "marketing costs: 5,000 LKR". This may not be exactly how it happens in every company, but trust me. There's generally some variation of this number trickery.
This isn't the same as stock clearance. That's a different category, specifically, sunk costs. The deals you see every month? That's just someone SCREAMING to buy something from them while holding a bonfire of money as a smoke signal to you. And in the long it's nothing but bad.
It's bad for a company because over time it becomes lackadaisical towards questioning assumptions around how they want to grow the company's business in a sustainable way. You see this everywhere in the world. Even more so in the tech industry where people burn money to grow, and keep looking for more people they can get money from to keep fueling this madness. They forget the original target and keep motoring on.
Consumers become desensitized towards the constant badgering and screaming. They start to ignore the messages even when it could be of real benefit to them. They stop caring about what you have to say.
But none of this is new knowledge. So why do so many people continue to do this?
Try and question people around the sensibility of this and it gets defensive quite quickly. People will say that it's the cost to acquire a customer. Bring up existing customers and they'll call it reactivation costs. Ask them whether the lifetime value of the customer covers the loss they make on acquisition and reactivation and they won't know the numbers. Ask them why, and they'll say it's necessary. But, is it?
Over time I've been interested to see how a few companies really do promotions. The Commons Restaurant is a great example. Instead of just vanilla 50% off screams in your face, they'll introduce a themed week or month. Coffees for christmas. A "wrap craze" later. A " pasta mania" pasta promotion cleverly timed as the hype for a franchise by the same name prepares to open in Colombo.
The prices are all full price mind you. Their cost to acquire customers is creativity and care. They don't scream that they have the cheapest offering. Instead they smile quietly and open up a platter that says, "come to us. It's a pleasure to share with you". Sure there's percentage off style promotions from time to time. And they are needed. But there's a balance to be made. When you hit that balance, the discounts cease to feel like a yell for attention. Instead, they become what they are intended to be: a way to say thank you.