Hooked on discounts

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Hooked on discounts
Hooked on discounts

Online commerce led the charge during holiday 2010, as both e-tailers and traditional retail merchants laid on the offers. Online sales growth had been outpacing those of most retail categories throughout the year, as the sector continued to grow its share of the retail marketplace, and e-commerce clearly influenced both marketing efforts and shopper behavior during the year-end selling season.

There were still plenty of shoppers shivering in the pre-dawn cold at mall parking lots, waiting for the early-morning sales on the day after Thanksgiving, but this past Black Friday, many also checked their smartphones and iPads, looking for a better deal online — if they hadn't done it already the day before.

“It's kind of escalating warfare, if you think about it,” says Sherif Mityas, a partner of retail consulting firm A.T. Kearney. “Good news for the consumer, because online retailers are really driving very aggressive promotions and activity. That's causing all retailers to have to up their game.”

The barrage of offers — sent by e-mail, newspaper circular and direct mail — was constant during this holiday sales season. Retailers pulled out all the stops to coax still recession-wary consumers to spend on gifts.

E-commerce jewelry site Blue Nile offered “Holiday Exclusives” up to 44% off every day from the Monday after Thanksgiving until the day before Christmas Eve. At the other end of the price spectrum, Toys “R” Us provided deals online and in store every day from the release of its annual “The Great Big Christmas Book” on October 31 (also produced in an iPad version for the first time last year) until the week before Christmas, says Greg Ahearn, SVP of marketing and e-commerce at Toys “R” Us, Inc.

The toy retailer added several new digital capabilities to its holiday marketing plan including coupon barcode scanning, a mobile messaging program and social media efforts, he says.

Discount mastery

Despite a seemingly nonstop deal-of-the-day bonanza this past holiday season, retailers remained careful in determining how to position price cuts. Click to read more.

Retailers' marketing strategies worked. Holiday shoppers broke their two-year frugality streak and spent $584 billion on gifts in November through Christmas Eve — 5.5% more than the same time the year before, according to MasterCard SpendingPulse.

“2009 was a year of gaining some stability; 2010 is really a step towards growth again,” says Michael McNamara, VP of MasterCard SpendingPulse, which tallies sales by credit cards and other payment forms.

But the retailers' intensive online marketing and shoppers' new frugality have changed the environment since the start of the recession. Shoppers have become savvier about sifting through offers — thanks to online comparison shopping and research, even on offline purchases — and have been trained by the constant flow of sales to wait until the last minute to get the best deal on gifts, knowing retailers will oblige.

Merchants say they won't give up those habits even as the recession eases, while analysts caution that this tactic is blunting the effect of discounts to motivate shoppers and increasing the pressure on merchants to find other ways to goose sales beyond price cuts. They argue that this past holiday season could mark the peak of one-day sales and doorbusters as holiday marketing tools.

“The question is whether Black Friday and Cyber Monday become a dead issue after this year,” says Bradley Honan, SVP of StrategyOne, an Edelman unit that carries out strategic research and polling.

Season of discounts

It was a heavily promotional holiday, indeed, led by the online and multichannel retailers. After years in which Black Friday was the alpha and omega of holiday promotions, merchants inundated consumers with one-day sales and other enticements in 2010.

Cyber Monday, the online sales promotion on the Monday after Thanksgiving, begat Free Shipping Day, a promotion on December 17 where hundreds of retailers offered free shipping on items ordered online, guaranteed to arrive in time for Christmas.

This year, CashStar, an online gift card platform, declared “Click it to Gift It Day” on December 23, the zero barrier for ordering electronic gift cards online in time for the Christmas holiday. Nearly 50 retailers including Gap Inc., The Home Depot and Williams-Sonoma participated in the promotion, offering deals such as discounts, charity drives and other perks.

In many instances, online retailers and the websites of multichannel retailers were steering the overall pace and shape of holiday promotions. Witness the wealth of early Black Friday deals on Thanksgiving Day, and the number of merchants such as Macy's, Wal-Mart and Sears that chose to open all or some stores on that day, after seeing the sales totals their websites racked up last year by offering early doorbusters on the holiday.

“Online [commerce] — because it's open 24 hours a day, seven days a week — really gives you a signal as to what your customer wants to do and is doing,” says David Friedman, president of marketing at Sears Holdings Corp. “When you see people shopping online on Thanksgiving Day, that tells us that they'll be interested in shopping in stores as well.”

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