Whether deliberate or not the 40% discount that Thresher is offering its customer this Christmas is a bad move.
Merry Christmas from Thresher! The retailer recently released a printable voucher on the internet entitling the bearer to 40% off wine and champagne up to a value of £500 until 10 December. Despite the fact that the voucher was intended as a special 'thank you' to selected suppliers, it has spread virally across the internet.
Last weekend awareness achieved critical mass with the news media picking up the story, and the subsequent publicity for the offer making it the most searched-for item on Google. No one, including Thresher, knows how many times the voucher has been downloaded and printed out so far, but conservative estimates are starting around the 1m mark.
According to Thresher, the situation came as a surprise. 'This has got way bigger than we thought it would,' a spokesperson was reported as saying. 'We are scratching our heads wondering how we can meet this level of demand and we are waiting with bated breath to see just how many customers take advantage of the discount and what it will mean for us financially.'
Despite this frank admission, the media has been speculating that this 'secret' offer is really just a ploy intended to generate publicity, increase sales and bring in consumers' contact details. The Scotsman newspaper concluded that the retailer would make millions and quoted an unnamed 'industry source' who claimed: 'This is a very, very clever marketing trick. They will be laughing all the way to the tills this weekend as I can bet you any money in the world that they will be making a pretty healthy margin on all of their wines. The basic business model is that instead of operating at the usual high-street margin of 30% a bottle, with this voucher, they will reduce that to 10% a bottle, but calculate on selling three times as many.'
I'm not so sure. This calculation ignores a host of longer-term ramifications. For a start, there is the hidden cost of cannibalisation. It is true that Thresher will probably sell more than three times as much booze and thus offset the reduced margins. But many of the sales they will make at 10% margins would have happened anyway at 30%.
Then there are the bullwhip effects on supply and demand. Thresher will soon sell out of many of its more attractive wines, creating disappointment for consumers, hassle for store staff, and a big hit on brand equity.
Wine is one of the few products to improve with storage, so this discount could result in customers bulk-buying and removing themselves from the market for many months to come. Then there are the logistical headaches involved in reordering stock from suppliers. It may take months to replenish stores following the exaggerated demand generated by this offer.
That is assuming Thresher's suppliers agree to resupply it. The Champagne houses and producers of fine wines can get very sniffy when they see their elite brands included in commodifying price promotions. These suppliers will also be feeling the heat from other retailers that have kept their brands at the RRP and now want to know why Thresher is being allowed to destroy their trade at the busiest time of the year.
Then consider the response of Thresher's competitors. The major supermarkets and online retailers hate to be beaten on price and many of these rivals may consider matching or even beating Thresher's prices to defend market share. A price war could erupt, with margins and long-term profitability badly hit across the industry.
Maybe Thresher made a basic error in releasing this coupon. Maybe it attempted a complex ploy to increase sales. That doesn't matter. The company has made a mistake and only time will tell just how much it will suffer for it.
