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Why do so many businesses continue offering “loyal customer” discounts when they don’t really work for customer retention?
The discount is really an outdated concept in business, going back to the old days where stores found it advantageous to pay less than wholesale price for certain products. With the advent of the Internet store, where front end costs on warehouses and retail stores could be minimized, lower prices and even auction prices became the new standard.
Today, while there are still discounts available—usually through bulk buys or expired or discontinued merchandise—the sad fact is that the “discount” has become a cliché in the modern business world. Every company claims to offer a discount, usually with a very high mark up, making the product seem like a great deal, when in fact it’s just overpriced to begin with.
Offering a customer or client a “discount” as a show of appreciation is not only not what they’re looking for, but in some cases it’s downright insulting.
Studies of Interest
No wonder then that a “whopping” 20 percent off is just not the thrill that it used to be. Nowadays, more people prefer superior customer service and personal attention, and that means that the “gift”, the extra incentive you get in addition or instead of the obligatory discount is more exciting and a better call to action. It’s also an effective technique in customer retention.
Customer service has been definitively been proven as the most important aspect in modern business, particularly for smaller companies. A report from RightNow stated as much as 89 percent of consumers will change companies and go to a competitor after a bad experience. According to Desk, about 60 percent of consumers admitted that they would actually pay more money for superior customer service.
Customer service, however, is more than fixing problems as they come about. All research suggests that more active campaigns, including ones that suggest action, are more effective than merely passing along a discount. According to Creative Minds, discounts are practically insignificant to the modern consumer if they are below 10 percent. However, a discount over 20 percent may well be a tip that something is too good to be true; indicating overpricing. The ideal percentage discount is 15 percent—but hardly anything newsworthy in the mind of most consumers.
On the other hand, companies that promoted gift-giving campaigns, including free thank you gifts, in addition to buy 1 and get 1 free call-to-action gifts, reported more interest from regular customers. According to a study called Expert vs. novice users: Comparative analysis of the effectiveness of online discounts and gifts by E. Crespo-Almendros and S. Del Barrio-García, experienced shoppers from online stores were more influenced by online sales promotions than new customers; furthermore they all reported they “change their attitude toward the brand” just upon seeing an online gift offered in the campaign. In contrast, no significant difference was recorded in measuring excitement for promotional incentives and discounts.
Action is Everything
Simply put, savings on a product’s price only means that you’re paying less a product you’re not quite sure if you want. But a free gift, a product that is desired and that has value, motivates people to take action—and always at a higher rate than a “regular” discount in price. Gifts represent action you take to experience a specific benefit, in addition to the need of the product you buy.
GJCookies.com knows the value of a free gift, whether it’s coming from its clients who buy their friends and family thank you gifts, sympathy gifts, corporate gifts and birthday gifts, but also its own incentive programs passed along to consumers and corporate clients. They’ve found great success in their Birthday and Rewards Program, where free gifts are provided to loyal customers, promoting the idea of staying with the brand for years on end.
Giving a gift may be the best way to ensure that customers continue to be excited about new promotions. Everyone can save these days…but only the best companies are capable of getting their audience excited and spending just for the possibility of unpredictable free gifts.