when do discount programs begin to undermine brand value?

We live in a new era of brand engagement. The Internet has opened up a floodgate of channels in which to target consumers. A growing trend among these marketing channels is location-based services (LBS) like Google Places, Facebook Places, and Foursquare. These services use GPS location via smartphones, allowing customers to “check-in” at local businesses. Sometimes users can even check-in to receive discounts, which is also another growing trend for marketers.

Sites like Groupon, LivingSocial, and ScoutMob all offer coupons and discounts for local businesses. In theory, the idea is that obscure, local businesses with limited advertising budgets can generate business by offering discounts through these sites. And, after these customers visit retailers, they will return again in the future.

Branding maven Al Ries disagrees with the strategy, saying discounting hurts brand value.

“You see the same phenomenon happening across the retail spectrum,” Ries wrote in his February column at AdAge.com. “Macy's, Kohl's and most department stores seem to have ditched the idea of positioning their brands, instead relying on discounts, sales and coupons to keep consumers coming back into their stores.” Ries says this is especially dangerous when social media makes it easier for coupons to fall into the hands of regulars, rather than first-time customers.

Ries’ point is especially apposite when it comes to discount programs for regular customers offered through LBS when they check-in. The question then becomes: Are consumers coming to a business because of brand loyalty, or because of discounts? And, will they stop coming if the discounts go away?

There is definite value into sites like Groupon generating new business for local retailers. And, the coupon rotation on the site makes it next to impossible for consumers to align their purchasing decisions based on a prediction of upcoming deals. However, discount programs in general—especially those offered through LBS or other marketing channels—do raise a good debate about when discounts begin to undermine the overall brand value.

Instead of drawing any conclusions on this topic, I would like to open it up for discussion in the comment section at BeneathTheBrand.com to get the opinions of people across the industry. Do discount programs ultimately undermine the value of a brand, as Ries suggests? Or, does discounting generate enough new business where the overall net is a positive for retailers?