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You are here: Home » The Marketing Diary » Real-life Marketing Experience » Discounts Do Not Generate Customer Loyalty

February 17, 2005

Discounts Do Not Generate Customer Loyalty

I spoke (together with Tomaz Gorjup, also from Studio Moderna) on generating customer loyalty at a direct marketing seminar today.

The key message of our session was that customer loyalty is generated not by discounts, but by the experience the company can provide to the customer during the entire cooperation cycle.

The key factors to generate a positive customer experience, explained through a case study of one of the Studio Moderna brands (Viva, a health magazine), are:

1. Value
The value you provide to the customer, not only through the initial product, but through all the services that accompany the product.

2. Personality
Your personal touch and character, and the ability for the customer to relate to your product, brand and company, which can also be achieved by connecting customers among themselves.

3. Attention
Paying attention to customers and constantly keeping in touch with them, showing them that you care.

4. Involvement
Getting the customer involved in creating the actual product and all the events that can surround the product.

5. Personal relationship
Having a personal relationship with the customer through all communicational activities and touch-points.

While all this may sound conceptual, it really works, as was proved by our own case study.

And, as you can see, there are no discounts mentioned here whatsoever.

But that doesn't mean that there's no good way to use discounts either. For instance, for one of our brands (AnimaTours, a tourism agency) we used discounts to penetrate the market as a total newcomer and achieve a 50% market share in our specific niche.

However, when we started marketing "follow-up" tourism packages to the same customers, we offered them no discounts and actually increased the price, but rather capitalized on the previously built relationship (all the five steps noted above).

And another of our international marketing tests actually proved that discounts do not increase the frequency of purchases by DRTV customers (Direct Response Television) and only generate additional costs, without generating more sales.

The whole point is that discounts should never be used as a loyalty building tool. There's nothing wrong with using them to penetrate the market or, for instance, increasing the "share of wallet" through cross-sell offers, but just don't rely on them as an integral part of your marketing strategy.

The worst result of a poorly planned and executed discount strategy can be diminished brand value ... unless you're a strong market player. In that case you just might bring down the prices for the whole market and create a longterm lose-lose situation for both your company and your competitors.

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