C4's Sports Direct investigation highlights how discounters erode brands

Last night's Channel 4 Dispatches on Channel 4 raised questions around how promotions can devalue brands, argues Thayne Forbes, joint managing director at brand valuation consultancy, Intangible Business.

Sports Direct: C4 Dispatches raises questions about how much control brands have in the discount channel
Sports Direct: C4 Dispatches raises questions about how much control brands have in the discount channel

Channel 4’s Dispatches documentary claimed to uncover "The secrets of Sports Direct" and bring the retailer’s discount pricing strategy to the attention of consumers.

But it also raised questions about the impact that Sports Direct’s discount pricing has on the premium brands that it sells.

This discount strategy is prevalent within retail, with value retailers such as TK Maxx, Primark and Aldi all bucking the trend of the ailing high street shop and reporting substantial sales profits.

But to what extent does discounting devalue the carefully cultivated premium brands they stock?

If you think about buying a new pair of trainers, you will automatically think of a number of brands that you perceive to be good quality and popular among your peers.

Consumers may come to question the value of brands

Nike, for example, commands a price premium because the brand symbolises much more value than just a sportswear.

The Nike brand and logo has come to be known as a mark of high quality, improved performance and innovation. Its association with top athletes and sports players makes it a desirable brand.

Brand erosion

But when a brand like Nike is positioned with a bright discount label next to less prestigious sports brands at a similar price point, over time consumer perception will change.

This can cause brand erosion because the brand promise that has been communicated to consumers is not present during the purchasing process. By de-emphasising product differentiation, consumers may come to question the value of the brand, and whether the original price is really worth it.

In a similar vein, discount pricing strategies have become more prevalent within the FMCG industry, especially in supermarkets where brands are being sold in direct competition. Brands are the casualties of the supermarket price war.

Brands are the casualty of the price war

Recent campaigns, including Aldi’s "like brands" activity, where the prices of popular brands are compared with own brand items, encourage consumers to question why they pay a premium for a brand.

By pitching the products against each other, a clear message is being sent to consumers that brands are not necessarily value for money.

What control to brands really have in the discount channel?

This, like Dispatches last night, highlights what level of control brand owners truly possess once their product enters distribution channels.

Would it therefore be better for big brands to refuse to enter discount retailers such as Sports Direct at all, to prevent brand erosion and maintain brand prestige?

Pricing strategy might be just one aspect of the marketing mix but it has a profound impact on consumer perception.

If retailers continue to drive deep discounts, brand owners may find themselves in a difficult situation, where they must choose between mass-distribution in order to drive sales or selective distribution to protect the value of the brand.



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