Supermarket aisles are packed with special offers and free gifts to lure customers into buying a particular brand. The economic climate has prompted every sector from retail to restaurants to slash prices in an attempt to win new customers and retain existing ones.
Indeed, paying full price is now the exception rather than the rule in many sectors, with £14.4bn spent on price-led promotions in the retail environment, according to the Institute of Promotional Marketing.
However, discounting is not the most effective strategy for building long-term brand loyalty, argues David Oliver, a consultant and former director of customer relationship management at Hertz Europe. Knowing your customer and giving them real value is the best way to keep them coming back, he says.
“If you position on price, you’ll always be vulnerable to a low-cost operator that can squeeze cost out more than you can. Consumers are happy to pay a little more for a brand that they believe in, or for a product that has carved out a unique selling point in their mind.”
Reducing the price of your products or services can damage your brand by encouraging fickle consumer behaviour, warns Gemma Lovelock, UK managing director at global marketing agency TLC.
She says: “Discounting is a lazy terminology for brand marketers. All it will do is give a quick boost. Once you get into that price war, it’s very difficult to go back and ask full price.”
Stuart Evans, general manager at loyalty agency ICLP agrees: “Trying to bribe consumers to stay is the wrong way to do loyalty marketing because they’ll take the bribe and then leave.”
TLC’s Lovelock believes that Orange stands out in the mobile market because it has engendered loyalty without resorting to discounting. Its competitors “bundle on the air time, trying to drive that trial and get that consumer switched across,” she argues.
By offering its Orange Wednesdays two-for-one cinema tickets, the mobile business is giving value to its target audience without damaging its reputation through price-led discounts, she adds.
Sky, on the other hand, has fallen into the discounting trap to try to achieve its goal of signing up 10 million new subscribers by the end of the year. The media company started its discounting strategy by first offering free installation, then a Sky HD box and giving away broadband and calls.
Commoditising your business can be dangerous, warns Lovelock, because “you have to retain customers for so long” at the agreed price point, always running the risk that they will fall away when you try to sign them back up at a higher rate when the subscription runs out. “It gets worse if you use this tactic in the FMCG environment because you’ll drive trial, but not necessarily loyalty,” she adds.
The key to loyalty is not price but knowing your customer and offering them something that really adds value to the individual, thinks Chris Dobson, head of CRM and customer insight at National Express.
He says: “If you start to understand your customers’ needs and align your products, services and customer communications to those, then you can build up a strong loyalty.”
Compiling behavioural data on consumers can help brands understand what drives their interest. This can come from how a consumer has browsed the internet or interacted with an email.
Evans adds: “Clients are starting to examine how they combine transactional metrics with data from websites and social media interactions to get a real understanding of the customer.”
Using data in this way ensures that brands offer consumers relevant, usable value, instead of uniform offers or across-the-board discounts. Evans says: “You can differentiate beyond price by having a value for money offering that is focused around understanding your customer needs and meeting them, ideally uniquely, against your competitive set at an appropriate price.”
Online retailer Boden has been using its data to create a promotion it calls Johnnie’s Jollies, which encourages existing customers to increase their volume of purchase. The incentive, created by TLC, offers two-for-one promotions on cultural days out suited to their profile.
“We knew that their likes and dislikes would be very different to Littlewoods customers, for example. We needed to talk to them in a very different way,” says Lovelock.
Responding to customer needs is especially important for brands looking to retain high value customers, and developing strategies to satisfy this demographic can really affect a business’s success in the long term.
“Treating customers according to how valuable they are to you should be a mantra for every business. It’s not just about keeping customers, it’s about keeping the right ones,” suggests Oliver.
Online channels have become a popular and cost-effective way of getting to know customers and tailoring offers with personalised content and discounts.
Dobson at National Express says: “Our core marketing channel is email, which we’re trying to take to a place where the more our customer interacts with us, the more relevant we can make their communications.”
However, social media is where brands are now heading to build customer relationships and many now use Facebook and Twitter as an integral part of their marketing mix.
Social media platforms provide the perfect place to start a dialogue with consumers and ultimately drive loyalty, believes Melissa Loddo, online and CRM manager at New Look.
She says: “Social media channels provide brands with an ideal environment for establishing an ongoing relationship with customers that extends beyond price. When you interact with customers and provide useful or entertaining content, you have an opportunity to move beyond a primarily transactional relationship.”
Loddo continues: “When a customer invites you to keep in touch they are not only giving you a tacit endorsement, they offer you the chance to hold their attention and demonstrate your relevance to them. It’s this process of engagement that supports retention.”
However, Dobson at National Express cautions that merely having a presence in the social media sphere is not enough. “Social media is a two-way street. We need to ensure we can respond to the information we receive, as well as send content out.”
Stuart Evans at ICLP goes one step further and warns that with the rise of social media prompting open and honest discussions about brands, companies must ensure their brand values are rock solid to avoid embarrassing exposés by savvy consumers.
“Although it’s nice to see a brand on a bus shelter saying ’We’re an ethical, fair trade company, we look after customers and do all these things’, the first thing a customer will now do is decide whether that advertising is real or not, by using their mobile to look at social networking websites and check out what other people are saying about the brand. If that potential customer does not believe the brand’s claims, it has just wasted a lot of money.”
To truly drive loyalty and retain customers for the long term, brands must go above and beyond discounting to add value that really resonates with consumers. Getting to know their customers by providing engaging, honest content and using the latest social media platforms, will help build a loyal consumer following that will guard against fickle consumer leapfrogging.
To gain inspiration and knowledge to take your retention strategy to the next level with the help of top brands such as Sainsbury’s, Barclaycard and Virgin Media, book your place for the Annual Customer Retention Summit today at marketingweekconferences.com.
- If you position on price, you’ll be vulnerable to other brands undercutting you. Consumers are happy to pay a little more for a brand they believe in, or for a product, that has carved out a unique selling point.
- Reducing the price of your products can cost you money and encourage fickle consumer behaviour. Knowing your customer and giving them real value is the best way to keep them coming back.
- Compiling behavioural data on consumers can help brands understand what drives interest. Combining transactional and web-based metrics can give you a real understanding of the customer.
- Go the extra mile to retain high-value customers. Even if it costs money, it will benefit your business in the long run.
- Social media platforms provide the ideal environment for establishing an ongoing relationship with customers that extends beyond price.