RetailWire BrainTrust Post: But We're Building Market Share

On RetailWire, there is a discussion about the impact of discounting on market share, profitability, and the general promotion-driven enviroment dominating retail today.

The discussion questions were: "Do retailers have the tools to understand what the wide range of discounting is doing to their margins? Do technology vendors offer retailers adequate tools to deal with today's promotional environment? How might retail's promotional pricing model have to be re-assessed in the years ahead?"

Here is my response:

This conversation needs to be turned 90 degrees. The article and ensuing discussion have focused on price elasticity, margin, and market share. When you are framing the conversation that way, then Ian's point is exactly right -- all you need is math to answer the questions in terms of profitability.

But "The Market" is an illusion, an abstraction. "Markets" don't shop in stores, shoppers do. And so the questions around whether discounting makes sense should be framed in terms of shoppers, not markets. Which shoppers bought discounted items in my stores? What else did those people buy? Were they cherry-picking the unprofitable items or were they buying the profitless $600 TV and then throwing in $70 of cables that only cost me $20 at wholesale? Did my best shoppers respond to the price discounts with increased shopping frequency or higher basket ring, or were they going to buy anyway?

Gaining market share is easy: give away everything below cost to every shopper you can. But that's not how you build a successful retail business. To win in the long run, you need to grow the frequency and spend of your best shoppers, get them to buy at least some product at profitable price points, and convert more secondary shoppers and cherry pickers into long-term profitable shoppers.

You can find all my RetailWire BrainTrust comments on my RetailWire blog.