The Festive Season Economy: Bargains, Bling and BOGOF
Geeta Sundaram
Ex-Ogilvy, Brand Strategist & Creative Director/writer, over 20 years in the business; open to relocating anywhere
In India, our festive season got off to a start last month with Ganesh Chaturthi and Onam, and there’s plenty more to follow. We always hear of companies talking about their plans for the festive season and how they intend to boost sales of their products through festive discounts. Even otherwise, we always hear businesses, the government as well as economists talk of the second half of the fiscal year being better than the first. I wonder how much of this they attribute to the long festive season in our country. I don’t think any think-tank or government body has estimated the size of our festive season economy, but it appears to me to be quite significant.
India’s festive season is different from that in other countries in that our festive season which begins in August/September each year continues even after Diwali because it leads to the wedding season which extends well into February/March. So, we are talking of two consecutive quarters or the second half of the fiscal year. Most consumer durables and packaged goods, as well as apparel, jewellery, travel and dining out all see a spike in consumer spending at least in urban India.
It is also the time of the year when it is raining discounts and price-offs galore, which in a way goes against conventional marketing/sales promotions logic, which is that when you know demand is going to be high, you don’t promise big discounts. Yet, that is what most companies and brands end up offering consumers. This was true even in pre-e-commerce days, but seems to have aggravated with their increasing influence. Everybody is chasing the same consumers with promos and discounts through the year actually, not merely in the festive season.
In this piece, I would like to concentrate on what too much of discounting and price-offs do to a brand and to the consumer economy, what are the alternatives that companies and brands can consider during the festive season, and finally, what impact excessive discounting can have on companies’ earnings as well as on the economy.
It is my firm belief and I know this from my long experience in the advertising industry that consumers don’t buy a brand because of a sales offer or discount. They have to be already predisposed towards a brand, in order for a discount to prompt them to buy more. Which is why sales promotions ought to be used sparingly and intelligently in spurring purchases. For example, when old stock is unsold and has to be cleared, or when you need to counter a competitor’s offer or lowered price, etc. In case some of you are wondering what BOGOF is, it’s the term we in the advertising industry use for “Buy One, Get One Free!” promotions. When it is discounts and sales all through the year and from every brand and company, the consumer is still not likely to buy more than what he or she needs or desires. Therefore, companies are not helping their cause by offering huge discounts right through the year, and through the festive season as well.
Then there is the effect that excessive discounting has on the image of a brand. If a brand continues to rain discounts all the time and for long periods of time, it has a deleterious effect on the brand’s image and how it is seen by consumers. Which is why sales promotions are always tactical exercises, never an ongoing strategic marketing activity. Speaking for myself, when I see Titan watches offer discounts all through the year of a minimum of 20% going up to 40%, I ask myself as a Titan customer if the company is desperate to do this in order to counter international competition that is now well-established in India.
Too much of promotional offers and price-offs have a negative effect on a brand which ought to be built on the basis of product quality, the brand’s image and the differentiating values between brands. This could also be contributing to the lack of brand loyalty or connection that consumers supposedly feel towards brands.
What should the festive season be about? In my view, the festive season is about connecting with family and friends, celebrating with them and about preserving certain customs that are part of India’s diverse and rich cultural heritage. If you consider that weddings too are occasions for similar celebratory experiences, they quite naturally form part of India’s six-month long festive season. Surely, there is more to cheer than just bargains and great deals!
What other alternatives can companies and brands consider during the festive season, that are beneficial for sales as well as long-term brand value creation? Of the top of my head, here are a few ideas that come to mind:
I am sure readers can come up with many more such ideas. Brands and companies can use any or a combination of some of these, depending on how their brand is positioned and their brand strategy.
It is the lower end of the consumer profile who benefits most from a price-off, but even they might appreciate something that also feels special and rewarding. However, the fact is that because margins are higher on more premium products, companies and their retailers can offer discounts on these more easily than on lower-priced products. Ultimately, companies marketing teams have to consider the costs and the benefits of a festive season promotion and what they intend to achieve. If the idea is to gain more consumers at the lower end (volume game), perhaps some of the price-offs can be subsidized by the more premium product range.
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As far as price-offs and discounts are concerned, I think it is best suited to retailers who have to often clear their inventory; in fashion and apparel, for example, it is quite common to see clearance sales at the end of every season when retailers have to stock up for the next season. I have been reading that this year many car companies and their dealers in India are stuck with unsold inventory and are therefore planning to offer huge discounts in this festive season. I have also been noticing a strange concept in car adverts in India for many years, where benefits worth a certain amount are offered on car models. I don’t know how that exactly translates in terms of a monetary benefit to the customer; perhaps it is a combination of many benefits from payment plans to warranty/service and optional accessories thrown in. Then too, the adverts read and sound so transactional and similar across car brands that they don’t interest or engage the reader at all.
Finally, there is the effect that all these festive season discounts, or more correctly year-round discounts, have on companies’ earnings and the economy. I have been reading in the newspapers that more and more of the festive season sales now take place on e-commerce sites such as Amazon, Flipkart and others which doesn’t help the problem with excessive price discounts. In fact, it exacerbates it. On e-commerce sites, discounts even on consumer electronics – which is what they excel at – are to the tune of 50%-80%, while in-store, I suppose the festive discounts are around 20-40% depending on the category.
Just as an approximate estimation exercise, I did some calculations to see what the aggregate impact of festive season discounts could be on some industries. I did this by considering the share of the festive season sales in annual industry domestic sales and considering the average price discounts that are being offered. These are based on figures for FY24 that I gleaned from various newspaper reports and Statista, and FY24 apparently saw a bumper festive season.
Festive season shopping is big in western economies too; Image: Pixabay
In the consumer electronics industry – which gets 30% of its sales during the festive season – assuming a discount of 20%, the industry earned approximately Rs 2 trillion, when it could have earned Rs 2.4 trillion, sans the festive discounts. Similarly, for the domestic jewellery industry, festive season earnings saw a drop of Rs 800 billion reaching Rs 2.4 trillion last year. The passenger car industry earned Rs 1.03 trillion last year during the festive season after discounts when it could have earned Rs 1.28 trillion. And finally, the domestic apparel industry’s festive season revenue came in at Rs 1.17 trillion, when it would ordinarily have been Rs 1.96 trillion, a drop of Rs 790 billion. Overall, at an aggregate level, just these four industries saw revenue of Rs. 2.24 trillion foregone in FY 24, thanks to festive season discounts. While it might not seem very much to many people, let me also tell you that this works out to 3.87% of our real GDP for FY24, which is considerable by any standard.
Moreover, this is probably a very conservative estimate since this is only for four industries, and I have assumed only 20% festive season discounts across all of them. What’s more, most newspaper reports or research cited consider only the 42-day period leading up to Diwali as the festive season; think how much more revenue is actually foregone through an entire quarter or two, which is what I consider the festive+wedding season in India! The news of India’s trade deficit for August 2024 widening considerably is in large part due to a surge in gold imports – near-doubling over the previous year’s figure for the same month. This is obviously because of the festive season demand, but exacerbated by the government’s decision to lower import duties on gold in this year’s budget, when I have been arguing on my blog that non-essential imports such as gold ought to be reduced.
I shudder to think what effect this level of festive season discounting would have had on companies’ earnings. Not to mention how much brand value might have been eroded and brand image impacted, for which there are no monetary estimates yet. Besides, there is the possibility that more and more customers put off their big-ticket purchases till the festive season arrives, because they know that is when it will rain discounts! It is not a good idea to have domestic consumption of discretionary purchases so skewed to a particular period or quarter for both companies and the economy.
That said, festive season discounts are commonplace everywhere and around the world. Festive season shopping is big in western countries too, and the Black Friday sales after Thanksgiving in the US are much sought after. In the US, from what I read and hear in the news, festive season shopping also has a significant impact on logistics companies’ earnings such as those of FedEx and UPS as also on hiring when Amazon hires thousands of extra people to staff its fulfillment centres to beat the holiday rush. China also has a festive season around their Lunar New Year in February lasting almost a fortnight, and these too are known to boost domestic consumption quite significantly, including massive domestic travel that takes place during this time.
This year, the festive season is expected to be more muted, according to media reports. Festive season is all very well. There ought to be more reasons for everyone to rejoice, than mere price discounting.
This article was first published on my blog on October 10, 2024.