The continual cutting of retail pricing in the hope of increasing unit sales is doing retail loyalty more harm than good, according to customer loyalty programme provider, Maritz Loyalty Marketing.
Traditional price war behaviour is no longer working as consumers demand more from retailers than low prices. Consumers say they want consistency, good customer service, and a degree of appreciation, says Maritz.
This follows a 2003 study from the National Retail Federation & STS Market Research that revealed that the percentage of all retail sales resulting from discount pricing has spiraled out of control. In 1971, 8% of all retail sales were a result of discounting. In 1996, the number jumped to 35%, and in 2002, 78% of all retail sales were a direct result of discount pricing.
Hope for the future
"The problem is that retailers are holding to the old way of driving sales and customer loyalty, which includes price-slashing, short-term promotions, and mass expansion of stores," said Michael Sewell, director of retail market development for Maritz Loyalty Marketing.
Sewell stressed that retailers can no longer afford to compete based on price alone, and must leave old practices behind and begin to adopt customer-specific rewards and services if they are to succeed.
Traditional retail practice was based on customer service, merchandising, store expansion, and discounting. True customer loyalty, however, can drive sales without the need for routine discounting.
According to Maritz, retailers should simply reward their customers for behaviour they have already displayed in direct proportion to the value they bring. In addition, they should make every effort to communicate with their best customers about their individual needs and preferences, and demonstrate that their loyalty is appreciated.
"It's still important to apply the 'golden rule' in retail - to treat all customers with respect and courtesy - but it shouldn't be used to govern marketing," continued Sewell. "And being cheaper than your competitors doesn't always add up to customer loyalty."