Shoppers de-sensitized by festive discounts

As the 2012 festive shopping season approaches, despite a wealth of retail offers and discounts having initially generated more custom, they won't provide a sustainable means for growth or customer loyalty into the new year, according to research by Ipsos Mori and The Logic Group.

The uptake of additional loyalty schemes among existing members has been strongest for online voucher discount organisations (consumers are members of almost two schemes on average), although satisfaction with these types of schemes is amongst the lowest. The cash-strapped British consumer will shop around for the best discounts, but a majority (70% of respondents) still prefer loyalty schemes where they can get better offers and services for being more loyal, and almost half (48%) expect to get better service from their loyalty scheme membership than normal shoppers.

Recent retail figures from the British Retail Consortium have shown a lower than forecast downward trend through 2012 despite over 10 months of online and in-store sales and discount offers:

• Easter in April was the weakest retail month of 2012 with sales down by 3.3% from 2011 (although this is thought to be due to the exceptionally wet weather at the time);
   
• June sales grew by 1.4% from 2011 - a figure much lower than expected for the Queen's Diamond Jubilee month;
   
• During the Olympic Games in August, sales fell 0.4%;
   
• Sales were down 0.1% year-on-year for October 2012.

"The findings from BRC and KPMG show that, even though the UK is moving out of a recession and has had several large events that were forecast to drive sales, consumers are still not spending at the rate of inflation. They are shopping around for the best bargains and selecting retailers purely on price. Retailers need to offer discounts to attract customers, but by cutting their margins as low as possible they are not seeing the benefits at the bottom line," said Jon Worley, director of customer interactions for The Logic Group. "This has been reflected by several British brands across a range of sectors going into administration in 2012, such as Comet, Glasgow Rangers Football Club, Habitat and Clinton Cards. The decline in profits hitting these companies shows that they have no margins for further reductions. As consumer confidence in the economy recedes further, companies will find it increasingly tougher to recoup or even sustain the historic levels of sale."

Honesty and integrity emerged as the top things to know about a company in order to judge its reputation (35% spontaneously mention these), showing a growing propensity toward transparency and even-handedness. The days when consumers tolerated being kept in the dark appear to be coming to an end. Given the current economic climate, perhaps consumers simply want to know what exactly they are buying into. Reputation is therefore a major factor in growing and cultivating a loyal customer base. Businesses must invert the conventional pyramid and "think from the consumer upwards", rather than from the business downwards, in order to really understand and act upon consumer motivations.

While offers can initially attract consumers to a retailer, this does not promise loyalty. With so many brands discounting to compete, offers and coupons are beginning to lose their appeal to consumers. When asked about loyalty schemes, more than a quarter (27% respondents) mentioned they are motivated by gaining points. This compares to only 11% being motivated by price and 9% by offers. Furthermore, 70% respondents prefer loyalty schemes where they can earn better offers and services through being more loyal.

"Consumers have had an overdose of discounts and deals. When purse strings are tight, offers are attractive. But eventually most of us prefer some preferential treatment as a result of our long-term loyalty to companies and brands," warned Worley. "Brand Britain has become eroded as a result of rampant discounting across the board. By 'flogging' merchandise through widespread discounting, the prestige of many British brands is being compromised."

As a result, the company suggests that any business aiming to launch a loyalty scheme now needs to bear in mind three key factors:

1. A loyalty scheme must provide clear value in terms of both financial incentives and service provision over and above the consumer's existing, familiar experience with the business.
    
2. A data-driven strategy must be in place; from transactional through to demographic and attitudinal data. Nothing is more powerful than combining this knowledge to understand customer motivations and effect profitable change. This can be built up in stages and over time.
    
3. Not all consumers are created equal. Whilst a more general acquisition strategy is typically widely accepted (e.g. mass discounts for sign-up), customer growth and retention must be based upon data-driven decision making through segmentation and targeted offers and discounts.