A discount retailer hurts no one but himself.

As Black Friday approaches, I was thinking about my Canadian retail friends. Black Friday wasn't even a thing in Canada seven years ago. Canadian Thanksgiving is in October.

The Canadian retailers decided they needed a new reason to throw an event at its shoppers so they followed their American cousins into the Black Friday frenzy.

Just another reason to give a discount to get more sales. It's kinda funny. Canadians don't get a Thursday vacation.

My friend Bruce owns five pizza restaurants. He believes customers only come to him because of his flyers. So he runs a flyer every three weeks. He'd do them every week but he can't afford the shipping costs.

The pizza business is notorious for this type of behaviour. Once upon a time I used to work for a pizza chain. We did the same things to keep franchisees and the top brass happy.

Even 15 years ago my gut didn't feel good about it.

Here's what happened, eventually the marketing effort fizzled out. It chased the transactional customer, who wanted the best price. At that time, we had two people answering phones at a restaurant on a Friday night. Two people to handle all the calls.

Do you know what the number one question was?
Yep, you got it. "What's your special?"

Some customers ordered after hearing the specials while others promised to call back. We have no idea if they did.

Bruce doesn't understand the difference between a transactional customer and a relational one. He's dehydrating in the desert, and he doesn't realize there is a cooler filled with fresh water to his left.

He thinks the easiest path to sales growth is chasing these low margin, fickle customers who only want the best price.

I order six pizzas from Bruce's restaurant every four weeks for a gathering of friends. The first time I ordered, they gave me a $40 discount. I didn't ask for it. Didn't know about it. Didn't need it. But do you think I took it?

Of course. I like money. You wanna give it to me? I'll take it.
The interesting thing is the second time I ordered the same six pizzas, I expected the discount. If it wouldn't have been there, I may have asked for it.

He converted a loyal, relational customer into a transactional one at his own expense.

Bruce knows the restaurant business. But he doesn't understand marketing. He thinks he does so I can't explain it to him. Bruce believes in these short term sales tactics.

I can't change his mind. I've given up trying.

I've seen this re-run before. Hell, I was in it.

I was thinking of Bruce while visiting a Factory Outlet store in San Marcos, just outside of Austin, Texas.

There were Bruce's everywhere. 60% off. Buy one, get one Free. Buy one, get one half price. The parking lots were full and customers were buying stuff. Looked like a good day for business.

There was one store that wasn't promoting discounts. Bruce could never work at this store.

It was the only one that had a line outside. Security had to manage the customers wanting to get a glimpse inside. No discounts. Business looked good here too.

It wasn't pizza. It was her Italian cousin: Gucci.

The pizza industry has converted itself into a commodity. It's like wheat, or salt. The prices continue to drop. A special we used to offer at the pizza chain 15 years ago has only gone up by $3.00. Inflation has gone up by more than that. The only way to make a living selling pizza is to sell a lot of them.

I'm not saying pizza has to be like Gucci. They can play a different pricing strategy and not get wrapped up in the highly competitive pricing wars.

The next time you run a sale to attract a customer, think about your marketing strategy.

This approach is hurting your longterm brand, unless you're moving old inventory or perishable stock. If you got lucky and you bought a couple of shipping containers at a discount and you want to pass savings onto your customers, that's ok too.

Just remember, a discount retailer hurts no one but himself. And if you're not sure, ask Walmart. They closed 269 stores in 2016 and just announced another 22 closures for North America in 2019.


Rick Nicholson is a multi unit business owner and partner at Wizard of Ads. He looks at marketing from the perspective of relationships, corporate beliefs and most importantly its effect on sales. If you want to know how he can help you, you can reach him at ricknicholson@wizardofads.com.