Unfortunately, we’ve all seen what can happen when our favorite brands fall into the discounting cycle. Every day is a sale that fails to differentiate the brand from the other stores that are all having 40% off, which continually erodes margins and can cut into the quality of the product at best,
severe liability and disenfranchisement at worst. The discounting approach typically attracts the low value customers who are likely to jump to another brand as soon as a comparable sale comes around.
Ulta, once known as a discount brand – if it was known at all – moved away from blunt-force discounting to incentivizing customers to join its loyalty program, which tailors benefits to the shopper. According to CEO Mary Dillon,
thoughtful freebies do more to deepen the emotional connection to the store than a generic 15% off mailer. Once the brand brought customers into its loyalty fold, margins improved, mass discounting disappeared, and the brand elevated itself from a strip-mall discounter to a trusted resource for all things beauty, and even built a fiercely dedicated cult following. The Ultamate Rewards program now generates more than 90% of Ulta’s overall sales.
But putting an end to discounting has to be done correctly.
When JCPenney tried to remove mass discounting from its stores, it was hit with major backlash. This is why transitioning under loyalty – whether you use a currency or not – allows you to promise the very best your brand can offer to your dedicated customers, and grow your loyal audience through offers and promotions that actually mean something from them. This saves on acquisition dollars typically focused on bringing in volume rather than optimizing clients who are willing to pay the right price to preserve margins, and starts the data exchange that can show gaps in your marketing and business strategy, so your team can course correct to save the brand. When you shift your focus from discounting to the masses to exchanging value for data, you can pull together a comprehensive view of how your customers buy. Barneys, if they were just looking at their website data, would have thought women were looking but not purchasing. But by knowing who was on their site and who was buying in-store, they could see a specific segment of shoppers researching jewelry online before purchasing in person.
Loyalty is the key to sending hyper-personalized offers and content to shoppers to avoid the discount drudgery, down to an audience of one, giving what every customer really wants: the recognition for being a valued customer through preferential treatment and relevant offers that meet their needs and wants. These emotional cues continue to bond customers to your brand.
Going beyond that, you can use loyalty data to fuel a recommendation engine that increases upsell and cross-sell opportunities. Amazon is the leading case study here, but highly sensitive loyalty analytics can identify what customers are most likely to purchase not only by their segments, but also by other characteristics that indicate they’re an outlier in their cluster
. In this way, machine learning can pick up the thousands of data points on one customer to provide the next best offer that will appeal to the customer, while meeting business objectives.
Brands can’t survive on massive discounting. We personally would love to see more of our favorite retailers and travel and hospitality providers enact a loyalty initiative to offer up the content and offers that appeal to us, keep us coming back and keep their brand flush with great customer experiences.
Trend #3: Paid Memberships