What’s the impact of intense short-term discount periods on long-term customer loyalty?
A frenetic December retail period has just passed, with big discounts on offer.(At the time of writing January sales continue on…)
The National Retail Association report that “Nationally, consumers have spent around $2.28 billion nationwide in the Boxing Day sales, which is up from $2.19 billion on last year”
Just a quick calculation makes it $95 spent per living person in Australia (about 24 million Australians). And that’s just one day – Boxing Day!
There are some winners in the retail sector that clear stock and get their discounting strategies spot-on (protecting margin if they can) plus the benefits to all the flow-on industries.
However, the “sale” noise was quite overwhelming during this period…the radio, TV, email in-box was flooded by abnormal amounts of email frequency, catalogue letterbox, social media platforms and so on, screaming, “take an extra 30%, 40%, 50% and more off!”
Then there’s shopping centre mayhem during these frenetic sales period, with car-park rage and merchandise message chaos. (There’s always the option to avoid this and shop online).
Adding this all together made me wonder what the collateral damage from these intense short-term sales would be on long-term customer loyalty.
How do these intense short-term discount periods impact long-term customer loyalty?
To understand their impact, you need to be clear on a definition of ‘customer loyalty’ (one that I am intending to research further with consumers in our ‘for love or money’ research study in 2017).
Here are 7 definitions (from many sources and in no particular order) for you to review and select as your preferred definition or craft your own.
1. “Customer loyalty is defined as a feeling of attachment for a company’s products, services, and people. These feelings manifest themselves in many forms of customer behavior. The ultimate measure of loyalty, of course, is share of purchases in the category”. Jones & Sasser 1995.
2. “Loyalty is a long-term commitment to repurchase involving both repeated patronage and favourable attitude” Dick& Basu 1994; Stank et al. 1999
3. “In a business context, loyalty can be defined as a customer’s commitment to do business with a particular organization, purchasing their goods and services repeatedly, and recommending the services and products to other people” Mallory & Barnett 2000
4. “Loyalty truly exists when the customer resists pressures to switch to another brand” Ngugen & Leblanc 2001
5. “Service providers desire customer loyalty, because a customer that has an attitude and behavioural commitment to a service business may repurchase even if they are dissatisfied with the last experience” Weiner 2000
6. “Customer loyalty is the result of consistently positive emotional experience, physical attribute-based satisfaction and perceived value of an experience, which includes the product or service” Shaw & Hamilton 2014
7. “Customer loyalty is the intersection of Behavior & Belief optimised over the long term with a particular brand/ product/ service vs a competitive offering. Behaviour being customers purchase more and more often and belief being they go out of their way to advocate.” Posner 2017
Whichever definition you choose to accept or adapt, there are a few common themes…
• feeling of attachment
• long-term commitment
• repeated patronage and favourable attitude
• commitment to purchasing repeatedly and recommending
• resist(ing) pressures to switch
• purchase more and more often and go out of their way to advocate vs a competitive offering
With these in mind, how does the ongoing cycle of the short-term intense discounting impact long-term customer loyalty?
Here’s my view and I would welcome yours.
The single biggest impact is they create an intense activity and increased volume of deal diggers – those consumers who are all about the price where commitment is of little or no concern. This leads to a higher level switching behaviour.
A rotation of customers
With such an intense period of switching, there is sure to be a reasonable amount of customer rotation – a brand that has the loyalty of a customer (by any definition) and they leave for a deal at a competitor may also gain a new customer on the same basis (given they also have a similar or better deal).
Whilst Boxing Day sales will certainly be with us for many years to come, the challenge for business who are in the vortex of these intense sales periods, is how to ensure they minimise the loss of their customers to the deal of competitors and then perhaps at the same time lose them for longer and how to entice as many of competitors’ customers to their deal and keep them for longer.
One way to combat switchers is to have a valuable loyalty program that has engendered loyalty over the year and then at this intense period provides some EXTRA benefits (some might be savings) whether overt or by surprise, for members during this period.
Here’s the idea: Budget for a buffer of benefits (all the b’s) for this period. Plan and budget ahead to give a bit more to members in this period.
I have no stats, facts or figures to prove that this works, however I did notice many brands have POS that had clear messages such as “VIP members receive an extra < %> off” and I received a multitude of emails from my loyalty program memberships with offers “only for members”.
Whilst a loyalty program is not the answer to all your customer loyalty needs, it can play its part in minimising the collateral damage on customer loyalty during heavy switching periods.
Finally as the “sale” noise slowly descends from a scream to a shout, it’s time to plan for the next Boxing Day sales and think about a loyalty buffer budget to minimise the impact on customer loyalty (by any definition).
Have a happy loyalty day!