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GUEST COMMENT If you’re looking for scale, think beyond a sale

So when is a mass discount the right move?

Marketing strategies have traditionally been centred on customer acquisition. But as acquisition channels such as search have become more costly, the new challenge for marketers – and the harder, more important hurdle – is customer retention. Traditional methods of driving sales don’t work in a world where every retailer can offer the same level of service, and retail is a hugely competitive landscape. Retailers need to differentiate in new, inventive ways.

Google and Amazon have made it possible for people to find more or less whatever product they want, often to the detriment of brand equity. This fundamentally changes the nature of shopping and of loyalty: there is no longer the same expectation that a first purchase will lead to a second.

As a result, many retailers are rightly assessing how to develop their existing relationships with customers, rather than focusing too heavily on where they have come from. Their ability to create emotional connections is key here, as well as the ability to provide experiences that search companies or marketplaces can’t. In fact one of the most common questions clients ask us is how they can encourage that all important second purchase – the first step on the road to true loyalty.

The reality is that the tactics that used to drive footfall such as seasonal sales, differentiated customer service and low price points just don’t work as well any more. People expect good service as a given. It’s more about fostering emotional connections with customers. This kind of connection happens when a customer feels that the brand ‘gets’ them. ASOS, for example, knows its customers inside out, and have their targeting, timing and content spot on, becoming not just a service, but almost part of a customer’s identity.

Yet perhaps the oldest tenet of marketing – price – has been most disrupted by our new high-octane, tech-driven retail environment. Where historically marketers would offer vouchers and coupons, all too often we’re seeing modern day marketers offer blanket discounts via email to their whole customer base. In a data-saturated world, marketers need to ask themselves why they’re underselling themselves to everyone in their mailing list.

Resisting temptation

So when is a mass discount the right move? There’s no doubt that sales appeal to consumers’ inner bean counter, and they can be very successful in driving acquisition – but many retailers find it too easy to fall into the ‘sale at scale’ death spiral. Too often we’re seeing retailers resorting to discounts to drive revenue without considering the impact on the long-term relationship with a customer. There is already research that indicates ‘sale’ signs in store become less effective the more they appear, and the same logic applies online. Yet, retailers are still tempted by the instant bump in revenue. This is short-termism at its worst.

When we flip this, we can see that it’s something of a trap for the retailer. For example, let’s take an imaginary customer – Rosie. Rosie loves a specific jewellery brand, buying from it every time she has a big occasion to attend such as a family birthday, Christmas or a wedding. These occasions come around every two months or so throughout the year. However, she knows that the brand emails her a 5-10% discount sale each month. If you were Rosie, and knew you were going to that brand either way, would you buy at full price or wait for the sale price? Unless the brand is built on having an ‘always-on sale’ – like the very few permanently ‘on sale’ brands that have mastered this way of operating – there is no reason to encourage customers to just wait for your next mass discount before they buy.

Rewarding loyalty

So once you’ve established that not every customer needs to be incentivised by a sale, what’s next? For these people, limiting the number of mass discounts that go out to everyone to once or twice a year, while sending loyal customers (such as Rosie) a relevant ‘reward’ such as free shipping, a personal shopping assistant, a gift or invite to an in-store event is a far more effective strategy. This acknowledges ‘Rosie’ as a loyal customer, and crucially says ‘thank you’. Instead of blasting out a 10% voucher to all customers as if they have identical wants and needs, the jewellery brand would have been better off maintaining its brand value and rewarding her with a gift, or an experience based on what the brand knows she likes.

Whilst a sale or discount might entice a new customer to try a brand, in our experience it’s actually what the brand does next that has the most impact on both revenue and brand perception. It’s clear that establishing a clear retention strategy that rewards loyalty is more effective for the long term goals of the brand. Above all, if your loyal customer then becomes an ambassador, a virtuous circle with acquisition is established.

One excellent example of a brand doing this well is Charles Tyrwhitt where, post-first purchase, each customer receives a letter from owner Nick Wheeler himself, to thank them for their business, outline the journey he has been on to get where he is, and reward them with money off their next purchase – effectively making the customer feel special, rather than part of a mass discount roll-out. Ultimately, brands make the most revenue from their loyal, repeat shoppers, not the one-off customers who take advantage of a retailer’s margin-defeating sale price.

The retailers that really consider their long-term brand value to customers (rather than chasing short-term revenue spikes) can offer something that nobody else can – close, customer-centric relationships that can hold a special place in customers day-to-day lives – and these are the retailers that will thrive in the future. In summary, it pays to take the time to show gratitude for loyalty, rather than over-relying on discounts. You can then begin to build those crucial customer relationships.

Author: James Dunford Wood, co-founder and chief customer officer at Ometria

Image credit: Fotolia

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