Is there life after discounting?

01 March 2012

Increased consumer spending in an economic downturn

Whilst the general outlook for the global economy has deteriorated during 2011 as consumers continue to worry about rising unemployment, higher living costs and general tightening of the purse strings, there are positive signs that consumers are now bucking the economic trend. Increased spending is being witnessed on discretionary purchases such as jewellery, home furnishings, sporting goods and 'self-gifting' - especially where the consumer believes they are getting a great deal!

The influence of coupons, short-term offers and special discounts is bigger than ever in driving consumer spending - both offline and online. In fact the availability of coupons, deals and free shipping are considered the biggest influencers in the continued shift from bricks-and-mortar retailers to online merchants.

More savvy consumer behaviour is both indicative and symptomatic of an economic downtown, whereby even a brand's most loyal customers can become more price-sensitive alongside the more hardened deal hunters.  

Discounts don't drive loyalty

There's a common and often valid argument amongst loyalty professionals that discounts don't drive loyalty. Coupons and discounts have traditionally been considered as more suited to driving acquisition than increasing customer loyalty and retention, since a brand's loyal customers are precisely the ones to whom they shouldn't need to provide discounts.

This traditional view has been further enforced by questions raised over both the short term returns (to participating businesses) and the long term sustainability of online group-coupon sites such as Groupon, Living Social, Google Offers and the many carbon copies cropping up in the digital marketplace. Such sites run the risk of encouraging buying behaviours whereby consumers only purchase from businesses when they are offering significant discounts, and never when they don't. These providers might enable a business to acquire new customers but they do not provide a suitable foundation to engage with them, drive loyal behaviours and create long term, profitable relationships.  

More than points

Whilst the value of points-based loyalty programmes are regularly benchmarked, this mostly focuses on the point/reward ratio and benefits offered to customers.  However what is not revealed or acknowledged by the customer, is the insight generated by the programme which enable brands to positively enhance the experience and inform decisions on store formats, product ranges and merchandising.

Furthermore, retailers must exploit the data they hold on customers and use the insight it provides intelligently. This reinforces that the value of a loyalty programme should not simply be measured on the economics of points and prizes, when it also presents the opportunity to create so much additional incremental value. Many retailers, particularly those with a focus on discounting, fail to grasp this concept's rationale and believe in the value that customer data can provide.

Undoubtedly significant financial barriers exist for discounters to create points programmes but not every loyalty programme has to be points based. The simple goal is customer data. Without a long-term data strategy the tactical promotions offered by retailers provide them with no value apart form a short term peak in revenue.

Think relationship development

Whilst discounting and offers have their place, the goal must be to better understand how you can make more of your customer relationships to benefit your business commercially.  

The principles which must be front of mind are:

1.  Customers care about value, not points

There are several ways to create customer value within a relationship:

• Reward - discounts on things I want to buy
• Recognition - benefits because of how I have transacted or interacted with you
• Communication - inspire me with ideas, information, recommendations
• Interaction - connect me to relevant people, value my opinion, validate my thinking
• Operations - make it easier for me to do business with you

2.  The goal is data

From the menu above discounters must ask themselves what value they can provide to customers so that customers will provide behavioural data in return i.e. identify themselves when they shop.

3.  Data is no good without an ability to do something with it

The right technical infrastructure to collect and analyse data is important as well as the ability to technically manage the relationship between customer behaviour and benefits provided in return.

4.  It all starts with the right people and strategy

Having the tools is not good enough by itself. There needs to be a commitment in the business to using data to make business decisions to benefit the customer and measure the impact of the resulting activity. Price is one of many reasons a customer will visit a discounter, but there needs to be a wider strategic emphasis placed on customer engagement.

Beyond discounting

Consumer facing brands cannot ignore the proliferation and availability of coupons and discounts in the market today. However, the smart approach is for these retailers to review the additional potential for gaining customer data and not only use it to drive more targeted, promotional offers to influence specific behaviours, but also to overlay a more strategic, longer term relationship approach.


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  • Loyalty in Asia according to Mary English

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  • The State of Customer Devotion in Retail: Part Two

  • The State of Customer Devotion in Retail: Part One

  • Loyalty in Dubai according to Sanjit Gill