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The Art of Being on Sale

There's an art to being on sale, especially for luxury businesses.

14 June 2016

or Inventory, Brazil Nuts, and Bottom Feeders . . .

My favorite afternoon snack is mixed nuts and seeds. There’s a special mix I buy that is perfect except . . . it contains Brazil nuts. I really don’t like Brazil nuts.

The good news is that my wife loves them. So every two or three weeks I bring her a canister containing all the remaining Brazil nuts. In fact, she likes them so much that I suggested that we buy a bag of Brazil nuts so she wouldn't have to wait for my leftovers. Interestingly, she declined.

Who is Your Brazil Nut Eater?

There are a lot of business management myths in the jewelry industry (a lot. A ridiculous lot). The one I’m tackling today is the one that says Designers Should Never Be on Sale.

Jewelry Lore has it that if you make high-end jewelry you should never be on sale, and that if you’re an eponymous designer, you should definitely never be on sale. But the truth is more nuanced than that.

On the one hand, the only reason people pay high prices (which ideally deliver high margins) is because your jewelry seems worth it. That is a troublesome phrase, worth it. It begs to be followed with the next two words, to whom. And the answer to to whom is what you need to get at.

But first, let’s do a quiz (answers follow. Do try not to cheat). Respond to each of these statements with True or False:

  1. If you acquire a buyer on sale, they will always expect to buy on sale.
  2. If you have regularly scheduled sales, people will wait for those sales to buy.
  3. You should never advertise a sale online or anywhere outside the store.
  4. You should never let retailers mark down your designs.
  5. You should never put your own work on sale.

Now let’s see how you did.

1. If you acquire a buyer on sale, they will always expect to buy on sale.

This statement is mostly true. There are some fundamental differences between full-price and on-sale buyers, and the point of first brand encounter seems to be a meaningful in terms of how they buy going forward. What do I mean by that? Well, most of us are wired to look at certain products in certain ways. For example, I don’t buy used cars, but I would certainly buy a used boat. I don’t wait for technology or shoes to go on sale, but I do wait for home goods and kitchen items to go on sale.

It’s a myth that people are either “on-sale” buyers or “full-price” buyers. While there are definitely people at both ends of the spectrum, most of us fall somewhere in-between, and we’re product-dependent at that.

So let’s talk jewelry. Some folks are on-sale jewelry buyers; some are opportunistic, grabbing sales when they can but not waiting for a sale if they can’t; and some folks are full-price jewelry buyers. When you acquire a new customer with an on-sale item, their long-term response has more to do with their individual behavior related sale prices and jewelry than the fact that you were on sale when you found them.

So why is this statement mostly true? Because of this one detail: Our first impression of a brand not only sets our perception of the brand itself, it also sets our value thermometer. So the risk of acquiring a customer on sale is that you might establish a value perception for your jewelry that is lower than the regular price of your jewelry.

So what do you do about this? First, be prudent about where you advertise and market being on sale. For example, if your core customer is a Town & Country reader who has proven to be a full-priced buyer, don’t advertise your sales in Town & Country. Sure, you can tell your current customers about your sale items, but use a different medium — like email — to share the information. That way you don’t risk attracting new, potentially full-price buyers, and turning them into on-sale buyers.

On the other hand, if you’ve tried a different magazine and failed to find the right kind of new customers with it, but did find a few customers for your lowest priced items, perhaps you should advertise your sale in that magazine. At that point you’re not looking for a new full-price buyer: You’re looking for a Brazil Nut eater.

2. If you have regularly scheduled sales, people will wait for those sales to buy.

OK, this is a bit of a trick question. Your Brazil nut eaters will wait for sales, because that’s the only way they’re going to buy your jewelry. Your full-price buyer will buy whenever she is moved to. She’ll definitely take advantage of a sale when she can, but won’t wait for a sale if there’s something she needs or wants.

It’s your indifferent buyers that will learn to wait for sales. So the big question here is, how many indifferent buyers do you have?

If you have a strong core of brand loyalists willing to buy at full-prices, then you can probably get away with having a regular sale once or twice a year. But if your following is mostly indifferent, then having regular sales could lead to a very negative selling cycle in which everyone waits for your annual or biannual sale and your margins go down the drain.

The most important thing is to know your customer. You must understand when she buys, why she buys, and what motivates her to buy. In the meantime, while you’re learning all this, you may want to schedule sporadic sales. When you offer an occasional spur-of-the-moment sale, a just-because-we-thought-of-it sale, or isn’t-it-a-beautiful-weekend sale, you teach your customers that sales aren’t something they can count on. Again — this doesn’t change the behavior of your Brazil Nut eaters (let’s start calling them BNEs, shall we?) or your full-price buyers. It does, however, hedge against your indifferent buyers swinging the overall business into a sale-only mode.

3. You should never advertise a sale online or anywhere outside the store.

This is true only if you’re a designer/brand and you’ve committed to your retailers that you will not ever put your own products on sale. Otherwise, it’s false, but with caveats.

If you do both wholesale and retail sales of your line, then you must be very thoughtful of your retailers when you go on sale. I don’t recommend ever putting current designs on sale on your own site if you still have them out in the stores.

However, if you have a lot of dead inventory collecting dust at your retailers, and if you offer a 2::1 or 3::1 buyback of inventory (which you should), then you can certainly pull back that dead inventory and put it on sale. Sigh. More caveats now follow.

If your new work looks so much like your previous work that consumers won’t know the difference, then the retailers may still hate you for going on sale with your old work. If you and I were chatting right now, this would lead us into an in-depth discussion of the strategies involved in collection development. But since I’m writing a blog and not a novel, we’re not going down that path at this time. Suffice it to say that it’s on you to make sure that consumers can see a clear difference between work that is no longer available at retail and the new, presumably more desirable work currently available.

So. If your collections are truly distinct, then by all means – host a when they’re gone they’re gone sale and let scarcity drive interest. Heck, you probably won’t even have to mark your prices down very far.

For the rest of the answer to this question, go back and review my answer to Question #1.

4. You should never let retailers mark down your designs.

Definitely false. In fact, retail is the very best place to eliminate unsold goods. Think about all the luxury shopping you’ve done. Isn’t there a sale rack in every Neiman Marcus, Saks, and upscale shoe department? Even Mercedes and BMW clear out year-end models to make room for new models. Cruise lines go on sale during the slow season. Every single industry – excluding only the very highest of high end – needs its BNEs. Smart retailers cultivate this subgroup of customers in order to move out old inventory to make way for new. If you don’t have smart retailers doing this work already, then you probably have retailers who are refusing to buy now because they’re still sitting on your old styles (and everyone else’s).

By the way - every bit of advice I’ve given so far also applies to retailers. What you don’t want is a retailer who is constantly on sale, living on the knife-edge of margin and bringing your brand value down with them. You also don’t want retailers who run sloppy businesses and therefore must go on sale regularly to get a little cash flowing. But savvy retailers who know how to bring in inventory and sell it quickly to their full-price buyers, who cultivate more full-price buyers than indifferent buyers, and who actively cultivate the right amount of BNEs so they can quickly sell out their slow-moving stock on sale — these are excellent partners to have.

5. You should never put your own work on sale

This is mostly true. But perhaps not for the reason you think.

Not all your work is going to sell through. It’s. Just. Not. If you have a healthy retail distribution network selling stocked goods, you are going to create products that don’t sell through. If you’re doing your job right, you are cultivating relationships with retailers who know what they’re doing. The reason you give a wholesale price to a retailer is because you expect them to do the retail job. The whole retail job. That means marketing, smart buying, selling, and eliminating styles that don’t sell — and in the process making enough cash to do it all again. Yes, you should support the tail end of that effort with rational buy-back programs, but the retailer should be doing the bulk of the work. Otherwise they are not worth the full wholesale discount.

Yes, the retailer has taken a risk in terms of real-estate and built-in traffic, but if that’s all they’re bringing to the table, you need to figure out if that’s enough.

OK, so back to the point. The reason you should aim to never have to put your own work on sale is that your retailers should be eliminating those dead products for you, and you should be controlling your production sufficiently that the goods you bring back in a buy-back can be circulated to other retailers who can still move it (that means staying on top of your buy-backs!).

The fact that it’s taken me 1,786 words to get to this point bolsters the notion that the question of “to be on sale or not to be on sale” is a loaded one. But there’s one thing you can count on to be absolutely true.

Unless you only make one-of-a-kind, pre-paid, custom-ordered jewelry, you will always have some inventory that needs to be eliminated. Putting inventory on sale is a tried-and-true solution to this problem. That’s why you must study and perfect the art of the sale for your own business.

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