Why brands should move from Discounts to Loyalty
Discounts have been one of the most preferred, popular and key promotional tool for brands and businesses, both in the Retail and the B2B sectors. In very competitive markets internationally, discounts have today become a foregone conclusion, and are used by brands to drive footfalls, conversions, volumes and top of the line growth. This is not just applicable to mass consumer brands and products, but has been adopted also by the luxury brands and concept selling agencies to build engagement and generate volumes.
Discounts as a promotional strategy and business model is getting saturated.
Discounts as a promotional strategy and business model is getting saturated. This is further compounded by a fiercely competitive market, especially where consumer confidence is disturbed by the socio-political factors, and which in turn restricts cash flows. As fixed cost of living rises, disposable incomes reduce, which affects retail sales and drives brands to get aggressive using discounts as a tool.
Discount does offer a few benefits to Brands:
- Easy to manage: Discounts can easily be managed as per brand, business and product requirement. Apply it to the entire product range or to a specific product. It can be easily calculated by product owners based on business formats. They can also be stepped up or down based on spot customer interactions.
- Faster response to business: Discounts offer faster results to the business. Their effect and role in generating sales can easily be seen and calculated.
Benefits to Customers:
- Instant gratification: In today’s world of instant expectations, discounts offer instant gratification. Customers save on the cost instantly as they get spot discounts.
- Key attraction offering value for money
Challenges:
- Takes the brand on the Red Ocean route
- Affects the brand reputation
- Limited time frame to offer discounts
Loyalty is an elegant way of engaging customers and offering them value going beyond their purchase and discounts.
Loyalty has a far more deeper connect with customers, and influences them in much more ways than a front end discount can.
Loyalty starts in the first instance of customer making a purchase, and becomes the common thread for further customer interactions.
Benefits to Brands:
- Focus on the Blue Ocean strategy: The Loyalty route enables brands to focus on the Blue Ocean strategy, because they are not competing with every other brand in their category or industry on the basis of discounts. There is no bleeding of profits, quality of products and customer service. Instead, brands can focus on building relationships and developing a deeper connect on multiple touchpoints going beyond their product interactions.
- Don’t discount the brand equity: Frequent discount promotions may lead your brand down the mass route. Loyalty offers similar benefits of value add to customers but does not discount your brand equity.
Loyalty provides continuity for further interaction and makes the customer come back for adding to the collective experience and benefits.
- Make the customer come back: Discounts tend to conclude the transaction by providing instant gratification to customer of cost savings, and in the same instance, may also leave no further scope for interaction unless the customer comes back for a completely new transaction. Loyalty provides continuity for further interaction and makes the customer come back for adding to the collective experience and benefits.
- Create more touchpoints: With a well structured loyalty program brands are able to provide more benefits going beyond their own products and formats, by cross brand and multi brand tie-ups which add value across multiple touchpoints for customers.
Benefits to Consumers:
- Expand your horizon: Customers are able to get access to products, services and value across multiple other brands through the loyalty program tie-ups which go beyond the primary brand where they earned their loyalty rewards.
- Get more than instant gratification: Discounts are temporary, but with Loyalty, the rewards go far and benefit customers beyond the primary transaction.
Challenges:
- Needs dedicated resources and strong strategy to sustain and grow: Running a loyalty program is not an easy task. From the documentation, to the IT systems which will form the foundation of member interactions and communication systems, to the integration of the retail POS systems to the program, to the rewards structuring, and the continuous improvement of the same is all key to the success of the loyalty program.
- Generates value and results over the long term: Loyalty programs and its memberships need to be nurtured and developed. The results come over the long term, and short term effects should not be expected. Businesses which expect fast realisation of their campaigns need to relook at their expectations.
Check out some of the following blogs for bigger insights on Loyalty:
http://blog.bondbrandloyalty.com
Let me know your feedback and thoughts on the comparative benefits of Loyalty v/s Discounts.
