Sunday, June 8, 2008

Pavlovian Marketing - Good Business Or Creating Bad Behavior

The Dark Side Of Relentless Sales, Discounts, Rebates, Coupons, And Incentives

By David Miranda

In his 1992 comedy, Mr. Saturday Night, Billy Crystal's character, Buddy Young Jr., was humorously comparing his family to a Jewish version of the 1990 Academy Award winning Dances With Wolves that had Native American roles like "Stands With A Fist", "Wind In His Hair", and "Kicking Bird" to name a few. His character, Buddy, referred to one of his relatives as "Never Buys Retail".

It is an appropriate term that can be used for all consumers today.

With few exceptions, the retail price of anything today has little meaning with few consumers paying the full price for products and services. Marketers have taught consumers that the retail price is merely the starting point to discount from. Consumers are trained to wait for the inevitable sale, discount, coupon, rebate, or incentive before they purchase and marketers continually reinforce this behavior - the incentive "du jour".

Ask yourself (and your friends and family), when was the last time you paid retail for anything? The automotive industry has institutionalized rebates and discounts. The travel industry has long employed yield management techniques, that creates tiers of discounts for airline seats, hotel rooms, car rentals, cruises, and travel packages. Retailers and brands conduct relentless sales, distribute millions of coupons and promote countless mail-in rebate programs. The examples are endless.

These techniques were intended to create business during periods of soft demand. They are now utilized year round. The brutal truth is that when these incentives stop, so does the business they generated.

It is the dark side of this Pavlovian marketing - it's called "rented demand". This is high cost/low margin business.

It is important for marketers to conduct a comprehensive cost/benefit analysis of these techniques. How much of a company's revenue is rented demand? What are the true costs of this business coming from consumers who have loyalty only to the incentive du jour? And what are you doing for your loyal customers - the ones that support your business regardless of the incentives?

Pavlovian marketing can be good business if used wisely. An old dog can learn new tricks.