It's time to face the truth: Discounts do not drive loyalty

Quick question:  What are NOT drivers of customer loyalty?

Answer:  Discounts, rebates, BOGO offers – even free burritos

These may appear to be effective business strategies to generate and grow sales, but consider these insights before going down that road.  Because, in actuality, discounting is death to a brand and, over time, proves that these are not drivers to building customer loyalty.

It’s very common for brands to cut prices, either through discounts or rebate programs. Some organizations believe there is strategic justification and that reducing price will:

  • Offset competitive threats
  • Drive acquisition of new customers
  • Incent customer trial/purchase
  • Assist sales team with resistance to premium product pricing
  • Help offset a sales slump
  • And, ultimately, improve customer loyalty

The list goes on. The real truth is that a discount/rebate strategy simply perpetuates:

Lack of Confidence

By offering product discounts, brands are really saying to the customer “we’re not confident in what we’re offering to sell it to you at the full price.”  This leads to a lack of customer confidence in your brand – and your ability to stand behind your products.  Confidence (or the lack thereof) is most certainly a game changer. And, the outcome is dilution of your brand and products.

Setting a low bar on customer expectations

When you offer a “deal” during the first or even the sixth customer engagement, there’s no going back. You’ve set your customers’ expectation to pay the same price next time. Or, worse, your customers will continually hold out until another “special” or “promotion” is available (see Kohl’s for example).  And, most likely, they won’t purchase without it. Setting this precedent is not smart business and takes longer to ‘course correct’ afterward.

Lower perceived value

Yes, customers do value a product or service based on price. Plus, your brand can be most effective in driving value in other ways, like enhancing the customer experience. The result is that you don’t risk impacting your brand’s reputation and the trust your customers show in future engagements.

Not having to have the "price" conversation

Avoid the “pricing” conversation because it doesn’t allow time to speak to other important matters such as your customers’ needs/business challenges and how your brand offers the ideal solution that helps them to avoid current pain points.

Negative impact on profit

It’s critical to generate profit. Simply put, if you discount by 50%, you’ll have to sell twice as much to meet revenue goals. Think about the time and resources needed to meet that goal!

Doing business differently

With these insights in mind, and with the knowledge and confidence in your brand’s products or services, you now have everything you need to establish a plan that leverages all of your assets to generate sales and create advocacy among your customer base. Consider a shift in focus from discounting price to stepping up effective marketing strategies that result in deeper customer relationships that sharpen the customer experience and ultimately drive customer advocacy.

1) Be confident and focus on value

  • Know your brand’s differentiators (from your customers’ perspective) and how your product/service adds value and/or solves their challenges
  • Maintain price integrity
  • Arm your sales team so they exude confidence
  • Prove your product is different than the competition by sharing the positive impact your product/service makes via customer testimonials, case studies or videos, providing a multi-dimensional message that goes beyond brand messaging
  • Make doing business with your brand easier

2) Know your customers

  • Understand your customers’ struggles, goals and day-to-day resistance points
  • Identify customer segments (best, mid and low tiers) based on engagement, purchase activity and advocacy
  • Demonstrate how your product/service brings value to customers’ business or life

3) Treat your customers accordingly

  • Create exclusive, relevant communications that complement your product and personalize the messages beyond customer name
  • Use data to make customers’ experiences relevant
  • Identify incentives that promote cross-/up-sell opportunities
  • Offer exclusive new product access to your best customers to increase product awareness and trial

By creating ways to emphasize the value of your product or service, you’ll create a better customer experience that elevates your customers to brand advocate status. Price should be protected as it is directly correlated to value, and loyalty begins with customers recognizing your value and, therefore, they’ll walk past the competitors to get to you. Discounting and rebate strategies can only lead to short-term sales and definitely won’t have the same effect on maintaining long-term customer relationships.  Plus, it’s hard to win at price wars – so, why go there?