Discounts being driven away by loyalty marketing

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By: Wise Marketer Staff |

Posted on August 27, 2007

Discounts being driven away by loyalty marketing

There was time when retail store owners knew their customers personally and could make personal recommendations that were trusted implicitly, but today's customers are increasingly perceptive and capable of making complex purchasing decisions and finding the best bargains on their own, according to a new trend report from international loyalty programme provider ICLP.

According to the report, entitled Retail loyalty: Turning the tide on discounting, retailer discounts have become ubiquitous and price concessions are commonplace, making it much harder for marketers to increase customer engagement, repeat business, loyalty, and profitability.

Steering away from bargain hunting Life is tough in the shopping mall or the High Street, because customers are better educated to bargain hunt, while discounts are becoming deeper and more regular. All of this means that maintaining a brand's image is becoming more difficult in an information age where consumers can simply 'Google' the brand name to find out what everyone else thinks.

As a result, the retail market is taking customer loyalty and relationship management ever more seriously as a route to more profitable business and sustainable growth. Enhanced customer data, customer loyalty programmes, and customer engagement strategies can all offer retailers genuine business advantages, such as profitability and sustainability that are otherwise out of reach for the simple discounter.

Discounting reaches its limits In such a competitive market it is not hard to see why retailers turn so often to discounting as a way of propping up turnover and to match their rivals. It is also difficult to justify giving up a strategy that seems to work (that is, cutting prices and watching products leave the shelves).

But, ICLP warns, there are a number of issues that a discounting war raises. For example, as more and more products leave the store at a narrower profit margin, the public is now well trained to seek out the bargains, and it has become almost impossible to maintain higher price points based on brand image when there are any number of discount channels available.

Enter the loyalty programme This is where customer loyalty initiatives come into their own. First, they allow retailers to collect all vital customer data that makes a customer-centric approach possible. Second, they provide both a direct channel of communication and a rewards process that provides additional foot-fall and customer engagement.

Of course the process of launching a loyalty programme is not enough in itself, and many programmes in the retail sector are clearly launched without sufficient planning and forethought. These are easily identified, however, as being the ones that offer the consumer little more in terms of value and buy-in than simple sales event promotion.

Trends driving engagement The report cites four main trends that ICLP has observed over the past two years that are expected to help raise the topic of customer engagement to board level in many retail companies worldwide, and also focuses on the present methods of gathering customer data, consumer research, and the challenges of segmenting and targeting customers to decide between brand-driven or price-driven messaging.

The report also stresses the importance of knowing the preferences of individual customers in order to more effectively influence pricing, promotions, and category management to ensure a better competitive position in the marketplace. According to Jason De Winne, general manager for ICLP, "Although we have highlighted the trends observed over the past two years, we are aware that the industry is still in transition when it comes to customer management, and expect to gather more intelligence through case studies and examples over time."

The report has been made available for free download from ICLP's web site - click here (free registration required).

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