Brands Beware: The Potential Pitfalls of Heavy Discounting This Festive Season

Pini Yakuel, Chief Executive Officer of Optimove, explores recent data findings which reveal retailers who discount more than 30% risk losing customers

With Black Friday fast approaching at the end of the week, retailers are keen to cash in on the higher volumes of traffic both in store and online. In 2017 £1.39 billion was spent in the UK, an increase of 11 per cent from 2016[1]. Black Friday is a critical day for retailers in the run up to Christmas, as increasing numbers of shoppers look to cash in on discounts.[2] This generates fierce competition between retailers, with many feeling pressured to discount heavily to remain consumer-relevant.

In an increasingly competitive marketplace that has led to a number of well-known retailers to close, discounting and sales does not foster loyalty or repeat custom. The EY Global Consumer Banking Survey uncovered that only 5 per cent of retailers believe that their customers are brand loyal and only 24 per cent consider customer retention important.[3] 65 per cent of a company’s business comes from existing customers and a 2 per cent increase in customer retention can lower costs by as much as 10 per cent [4]

The period leading up to Christmas can account for up to 40 per cent of yearly sales, with first-time customers contributing 50 per cent more transactions over this period. However before getting caught up in Black Friday hysteria and out-doing competitors, relationship marketing experts at Optimove warn that it is vital to establish a brand-appropriate discounting strategy. Recent data has shown that heavy discounts deter customers from repeat purchases, damaging customer loyalty and brand awareness in the long run.[5]

Pini Yakuel, Chief Executive Officer of Optimove, states that: “Recent data has shown that when a customer’s first purchase is discounted by 5 to 20%, they are likely to return to the brand in the future, charmed by the promotion. Discounts over 30%, however, have actually shown to have a negative impact on customer retention, dissuading customers from your making repeat purchases and harming brand loyalty.”

Pini continues: “Countless retailers are now noticing Black Friday and Cyber Monday deals are not converting into income, as profit margins are minimal against the mark-downs despite large volumes of sales. Brands offering discounts heavily rely on capturing and retaining the attention of new customers in order to recuperate losses, establishing a relationship with said customer. Getting too occupied with driving discounted deals could therefore prove a costly mistake. Once those heavy discounts stop, customers attracted by them will stop coming – unless discounting is used in a strategic way to start and maintain an ongoing rapport with the customer.

“Brands should consider developing personal relationships with these Black Friday acquired customers. Customization is the key to a good customer experience, leading to increased customer lifetime value.

Source : Optimove

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Footnotes:

[1] https://www.imrg.org/media-and-comment/press-releases/black-friday-2017-online-retail-sales-results/

[2] https://www.independent.co.uk/news/business/comment/black-friday-shopping-discount-retail-john-lewis-andy-street-thanksgiving-christmas-a8060061.html

[3] https://www.ey.com/Publication/vwLUAssets/EY-understanding-the-key-to-customer-loyalty-report/$FILE/EY-understanding-the-key-to-customer-loyalty-report.pdf

[4] https://www.fundera.com/resources/brand-loyalty-statistics

[5] https://www.bbc.co.uk/news/business-42093624