Retailers may be inadvertently reducing the chance of repeat custom by applying eye-catching big sales discounts.
In a blow to sales strategies followed by many retailers in the final few months of the year, new research has suggested that customers whose first purchase is discounted by more than 30 per cent are less likely to make repeat purchases from that brand.
The study, from customer engagement specialists Optimove, labelled these shoppers the “cherry-pickers”.
Customers whose first discounted item is marked down by 5-30 per cent are more likely to be charmed and, in fact, up to 20 per cent discount, the likelihood of these customers making a repeat purchase from the brand rises. It is only at the 30 per cent mark or higher repeat sales drop off.
Alon Tvina, managing director of EMEA for Optimove, commented: “Over the holiday period, retailers are waging all-out war for new shoppers, but acquiring one-time shoppers is extremely costly, especially when retailers use price slashes as a major acquisition strategy.
“The victory of acquiring a new customer may well be hollow: customers making the most of large discounts on offer over the holidays can end up hurting profit margins quite substantially, if they don’t become more regular shoppers.”
Tvina explained that getting discounting strategies right means understanding the different types of customer engagement – using discounts smartly can help retain loyal customers.
“To do this [business owners]will have to look at the data, testing the impact of marketing strategies on customer engagement rather than short-term sales, and adjust offers accordingly,” said Tvina.
A recent report by EY found that the majority of retail leaders (87 per cent) believe a loyalty strategy is key to success, yet only 27 per cent were convinced current initiatives were having a positive effect. Only five per cent of retailers responding to the research beleive customers are loyal.
Helen Merriott, UK&I EY Retail and consumer products market leader, said of the findings: “The relationship with the consumer has become increasingly transactional. With consumer expectations changing at a rapid pace, retailers need to create loyalty that sticks.
“Few retailers are fully embedding loyalty across core operations and customer touch points. Companies need to meet customer expectations at every turn to see increased business success as a result of increased customer loyalty.”