Employee Discount Fever
By George Anderson
General Motors’ “employee discount for everyone” campaign has worked well enough (sales up 41 percent in June) that Ford and Chrysler are starting similar programs of their own. This development, say retail industry observers, doesn’t mean that merchants in other product categories will begin marketing employee discount programs of their own.
Scott Krugman, a spokesperson for the National Retail Federation, told the Dallas Morning News that the discount offered by the carmakers will save customers thousands of dollars but the savings are much less significant on clothing purchases, for example.
Daphne Avila, a spokesperson for J.C. Penney, said the retailer doesn’t have plans for a GM-like program but that it runs a program that allows associates to share their discount with 10 relatives and friends at four times during the year.
According to Ms. Avila, the employee discount on clothing is usually 20 percent at Penney. “I know with our friends and family nights, those are pretty successful on those days that we have them,” she said.
In categories other than autos, Cheryl Bridges, associate director of the Center for Retailing Studies at Texas A&M University, says the sales stores run often offer greater savings than the employee discount.
“In most cases, the employee discount ranges from 10 to 20 percent. When stores run promotions, it’s up to 50 percent, so the promotions are often better than the employee discount,” she said.
Mr. Krugman worries that programs similar to those of the automakers could have an adverse effect on employee morale. “To take that perk and offer it to everyone, it could send the wrong message to employees,” he said.
Moderator’s Comment: Will (should) other retailers run “employee discount for everyone” programs of their own? What do you see as the potential pros
and cons of this strategy?
Daphne Avila and Cheryl Bridges may have given the best reasons for other retailers to try employee discount programs for regular shoppers.
- According to Ms. Avila, J.C. Penney has been successful with a similar but more controlled program for employees, their families and friends.
- Ms. Bridges said the discounts are less for consumers than normal sales. While this means shoppers are saving less, it also means retailers are making
more while customers can still feel positive about getting a good deal.
We are also less concerned about morale than Scott Krugman for a few reasons.
- When business is good, morale tends to be high throughout.
- Employees are usually given their discount even on sale prices. If shoppers are buying goods at the “regular employee discount,” then workers will still
be saving more.
As a caution, however, we would also point out that employee discount programs cannot go on forever because, eventually, the reduced price becomes what
the customer believes they should be paying regularly. Stores will need to have a what’s next strategy in place. –
George Anderson – Moderator
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6 Comments on "Employee Discount Fever"
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By far the two major profit sources for auto dealers are financing and used cars. Parts & service is next in line, and way down on the list is new car sales. GM’s employee discount, the cost of which is borne by the manufacturer, can only help GM dealers in the areas where they make the most money: financing, used cars, parts, and service.
If other retail models mirror that of automobile dealerships, they should strongly consider a temporary employee discount sale. But, I can’t think of any.
The success of GM’s promotion lies in the broad public awareness of auto employee discount plans such as Ford’s “Plan A” pricing and the “exclusivity” of those discounts (up ’til now). Ford and Chrysler tried to put a dent in the fabled “employee discount” buzz by exposing the fact that their current discounts added up to as good or better a deal than GM’s. But clearly consumers were having none of it. They believe in the employee discount for auto workers and that’s that.
Two major questions outstanding are: 1) do consumers hold the same “myth” of employee discounts for other industries? and 2) what happens now that GM has lifted its skirts and Ford and Chrysler are jumping in? Will the cachet last?
I believe, but I could be wrong, that the JCP promotion was an additional discount over any current prices. Inside information might show that the demand elasticity for those promotions wasn’t significantly better than for others.
The employee discount program works very well in situations where the actual price the consumer pays is not clear nor is future information easily assembled. Added discounts, such as the JCP program, are proven effective, particularly when there is some aura of selectivity in who is allowed to participate in the promotion.
I can easily envisage retailers offering employee discounts as an alternative to promotions. However, outside of relatively low-promotional profile players, I don’t see this as being a huge change in the way pricing is done. Nordstrom, as an example, which rarely promotes, finds employee discount promotions highly effective. Federated, where everything is on sale all the time to one degree or another, will probably succeed with this as an added discount, not as an alternative discount.
GM management has to be desperate due to their reputation for product mediocrity. So they resorted to a new kind of price promotion. Price promotions are easy and quick to implement. It is harder to fix the product. That takes vision and lead-time. No retailer with a highly-valued product assortment would need to resort to desperate price promotions. Of course, if the retailer has BOTH a product as well as a price advantage, they become almost unstoppable.
And constant price promotion (even if the themes are changed) leads to customer cynicism. The auto industry has minimal price credibility. Very few people would feel good about value if they bought a car at sticker price. How many core Macy’s shoppers feel good about buying something not on sale?