Retailers’ deep discounting strategies to acquire new customers can prove a costly mistake, according to fresh research.
Customers whose first purchase is discounted by over 30% are less likely to buy from that brand again, in a blow to the sales strategies followed by many retailers in the upcoming holiday season.
This is one of the key findings of a survey from customer engagement specialists Optimove, who found that slashing prices is a major strategy for acquiring new customers, particularly in the last months of the year, but data shows that as the discount rises over 30%, retailers are in danger of attracting ‘cherry pickers’ who buy a single bargain, but will not be drawn by the discount to buy more from the retailer at a later date. While the survey was exclusively of online shoppers, there are potentially lessons to be learned for convenience retailers.
However, of the customers whose first purchase is a discounted item, discounts of 5% to 30% do help to ‘charm’ individuals. Up to the level of the 20% discount mark, the likelihood of this customer making a second purchase rises.
But items discounted by 30% or more are likely to bring in ‘cherry pickers’. These customers have little future value, so the large discounts aimed at them can make a negative impact on the bottom line.
This deep discounting could be an open goal for retailers ready to focus on customer retention and get ahead of the competition, as a recent report by Ernst Young found that only 5% of retailers believe their customers remain loyal, and only 24% see retention as a top priority.
Alon Tvina, Managing Director of EMEA for Optimove, commented: “Getting discounting strategies right requires a deeper understanding of different types of customers and their behaviours. Using discounts smartly to attract customers and keep them will give retailers an opportunity over the coming months to convert one-time buyers into loyal, returning customers. But to do this they will have to look at the data, testing the impact of their strategies on customer engagement rather than short-term sales, and adjust offers accordingly.”