Black Friday is around the corner, and we’re about to see billions of dollars in brand equity being flushed down the drain.

It’s no secret that consumers love discounts — if you can get something for cheaper why the heck not. It’s also a well-known fact that retailers also love price off deals — when manufacturers sell their products at a discount, their see higher foot traffic into their stores.

Now, do brands love discounts?

Department Stores, Credit Cards, And Shopping Malls

The earliest discounts on record begin to appear in the mid to late 19th century when department stores started to create deals to attract a broader range of customers into their stores. Places like Macy’s and Sears started experimenting with different pricing strategies to drive foot traffic.

Then in the 20th century, with the advent of credit cards, consumers suddenly had more immediate purchasing power than before. This pushed retailers to compete more fiercely for the additional dollars in spending behaviour which led to the broader spread of discounting techniques to fight for market share.

At around the same time, shopping malls started to pop up across America, meaning retailers were now competing side to side, across from each other, above and below their heads for foot traffic. Store managers suddenly became gladiators and had to fight tooth and nail for every customer that walked into that consumption arena as they were now able to see in real-time their competitors’ strategies to drive market share.

The shopping mall, while great for the economy, was one of the worst things to ever happen to brands.

The Race To The Bottom

David Ogilvy once said the following:

The first problem is that manufacturers of package-goods products, which have always been the mainstay of advertising, are now spending twice as much on price-off deals as on advertising. They are buying volume by price discounting, instead of using advertising to build strong brands. Any damn fool can put on a price reduction, but it takes brains and perseverance to create a brand.

While this might sound like a high brow statement, it is factually correct.

The work that goes into building a brand is beyond any single human being. It takes decades of consistently producing clever work, launching research-backed innovations, and making strategically sound decisions to position a product in the minds of consumers — just have a chance at building a strong brand. Serendipity and timing are the other half of the equation.

I’ve seen first hand the race to the bottom unfold right before my eyes. Salty snacks, a category in which I work with for nearly seven years, suffered from commoditization pressures.

Rarely do consumers ever write in their shopping lists: “potato chips.” This category is highly driven by impulse buying; meaning that for brands to have a chance at driving sales lift at any given week they need to fight for floor space at retail stores.

Therefore, these brands inherently make the majority of their revenue by selling through retailers such as Walmart and Safeway, which already have an established foot traffic due to — you guessed it — price offs between manufacturers.

But here’s the caveat: the only way brands can secure additional floor space by the tills or at the end caps of aisles (two of the most sought after spots at any given grocery store) is by discounting their products or by negotiating pricey merchandising agreements — which is another fancy way to eat into your bottom line.

And this folks is a short story of how to commoditize a brand.

The Most Valuable Asset A Company Possesses

I don’t blame Ogilvy for saying what he said. He’s not wrong — and this doesn’t come from selfish reasons.

Brands have become major drivers of economic value for companies. Take the world’s top brands below:

With the exception of McDonald’s, which has a retail footprint of more than 40,275 stores worldwide, these companies have had to spend billions of dollars each year to remain top of mind in consumers’ heads.

But if you look at the first column, you begin to understand why.

A brand’s value is a piece of intellectual property that has the potential to become the most valuable asset a company possesses. You must put coins into the piggy bank every day in order to maintain its value — otherwise you begin to lose it.

Therefore, the task of growing a brand is even more difficult — which is why serendipity and timing are such an important part of this equation.

The Erosion Of Brand Equity

When I witness companies leaning into Black Friday with such gusto, it pains me to see it.

I understand that most businesses — particularly publicly traded ones — are trapped inside a short-termist paradox. They must deliver results before the next quarter comes, or else…

And oftentimes, particularly in the consumer goods world, the easiest and most surefire way to deliver on those objectives is through discounting.

When brands get into the habit of regularly discounting their products, consumers begin to expect it. If it’s not on sale, they’ll buy the brand that it is. Unfortunately, brand loyalty still is a dream for many, therefore they end up getting sucked into the abominable race to the bottom.

Take Peter Fader’s words as a cautionary note:

“Black Friday is the worst thing that marketers could do—it’s that one day a year when we treat all of our worst customers like royalty and spend all of this money, extra hours and services giving discounts knowing that they’re not going to be back again until next year at this time. Brands that increasingly allocate more budget into promotions at the expense of advertising are sealing their fate.”

These newfound expectations put increasing pressure on profit margins, meaning that brands end up having to do one of the following:

(1) Increase prices to maintain a viable business, or;

(2) Look for other business units to drive the profitability that’s being lost on the product line being commoditized.

This vicious cycle drives short-term temporary sales lifts, but at the expense of long-term brand value.

The Power Of Advertising

A steady diet of price offs is enough to quickly lower a brand’s esteem in the eyes of consumers. Why should anything that’s often discounted be desirable?

Good advertising has always been hard to measure, but nowadays with new advancements in marketing effectiveness measurement techniques, CMOs and CFOs can grow more certain that their decisions are paying off. While the return is slow, it is steady — and when done well, it compounds if strategically integrated with short-term sales initiatives.

Not every brand can afford to survive without discounts, I get it. Unless you’re a premium or purpose-driven brand, there isn’t much for you to lean on. And that’s the reality for most brands, which shows a chink in the armour that needs to be addressed.

The only way to address such a calamity is through great advertisement. Thorough research needs to be done to understand how your brand is perceived by your target audience, uncomfortable positioning decisions need to be made, and a steady and healthy diet of advertising spend needs to be found in budgets.

Great strategic planning, paired with relevant creative grounded on timeless truths that is distributed through effective media planning — done over and over again — is a loose recipe for success.

While rescue missions of this sort are possible to save the future of a brand, doing it from the start, in a strategic manner, and consistently over time is always the best course of action.

So, this Black Friday think about all the brand managers whose brands are about to get pushed into the mosh pit, lose value, and get further sucked into this calamitous cycle — and don’t take the bait.

PPA