The Impact of Discount Culture on Brand Loyalty

by Natasha Ambavle |

The prime concern of brands nowadays is to attract customers and gain a competitive edge. However, offering discounts isn’t the best option to do so. Vantage Partners, a consulting firm, surveyed 83 senior sales leaders at Fortune 500 companies across 11 sectors. The findings clearly indicate that the discount culture doesn’t actually work in favor of the brands and has long-term consequences on the overall brand value. This piece dissects the discount culture and shares ideas on how loyalty can be used effectively without heavy and widespread discounting.

Discounts are a Race to the Bottom

  • Impact on Brand Image – The brand image takes the biggest hit in a discount approach. The discount strategy spells desperation, it shows that the brand itself doesn’t trust its products and is relying on cheap tactics like discounts to sell it to its customers. It also puts your brand in a lower grade when it comes to quality. Customers begin to associate your brand with substandard quality which could be extremely damaging to the brand in the long run. 
  • Impact on Revenue – Needless to say, offering discounts regularly is likely to put a solid dent in your profit margin. A one-off clearance sale may not be as damaging to your pocket as regular sales. If you are solely relying on discounts to sell your products you need a substantial monetary buffer to make up for the loss. 
  • Impact on Loyalty – Loyalty thrives in a relationship that’s reliable and trustworthy. None of these attributes resonate with discount culture. Discount culture focuses on singular and stand-alone transactions, rather than on the holistic customer journey and as a result, there are no loyal customers of such brands. These customers, without a second thought, may move to the next brand that offers better discounts.

Loyalty Programs Versus Discounts 

While discounts are designed to attract customers and focus mainly on sales, loyalty programs focus on customer experience and engagement. With a discount strategy, brands may observe immediate effects on their balance sheets and accounts books but loyalty strategies are designed for lasting benefits. 

Loyalty programs will help you engage and retain customers. The focus here is on building a dedicated and loyal customer base. The brand that chooses to adopt loyalty strategies readily invests in rewards and incentives to reap massive benefits in the future. Loyalty programs enable a mutual value exchange. Customers earn rewards and benefits by purchasing from the brand which encourages them to continue their association with the brand and also lays the foundation of trust and reliability. Loyalty programs focus on customer engagement. A retained member develops an emotional bond with the brand which is unaffected by competitors’ strategies and marketing tactics, thereby giving the brand a strong competitive edge. Loyalty strategies are usually adopted by brands that have the foresight and are in the market for the long haul.  Consistent and well-thought-out loyalty programs can strengthen the brand’s position in the market and majorly contribute towards building strong brand equity.

Perks of Having Loyal Customers 

  • Up-selling and Cross-selling is Easier with Loyal Customers – With loyal customers, the trust in your brand is already established and the same trust is transferred across your brand extension and everything else your brand is associated with. It becomes easier to sell newer products to loyal customers since they are more trusting and willing to give your brand a fair chance because of the ongoing relationship they have with you. 
  • Substantial Increase in Revenue – Loyal customers are basically customers that you have successfully retained for a prolonged period of time and those that are likely to continue their association with your brand. Retaining customers is not only cost-efficient but also highly profitable. Increasing customer retention by just 5% boosts profits by 25% to 95%.
  • Organic Promotions – Customers that are loyal to a particular brand or product are quite vocal about their preferences. They will not only organically advertise your brand but also positively influence people within their circle. Their sheer dedication towards your brand will impact their network and bring attention to your brand and its products and services. 
  • Loyal Customers are Resilient – Loyal customers are undeterred by new entrants in the market. Even if they try out a different brand once or twice, they are very likely to return to your brand. It is because loyal customers form a bond with the brand that transcends monetary transactions. Discounts and offers by competitors have a negligible impact on loyal customers.

How Can You Design the Perfect Loyalty Strategy for Your Brand?

For efficient loyalty programs that deliver high ROI, you need an experienced loyalty partner such as Annex Cloud. Annex Cloud has the expertise and technological capabilities to design the best possible strategies for your business that resonate with your brand personality and help you achieve your marketing and business objectives. Annex Cloud is also a leader in privacy and security certification and will help you mine vital first-party data through your loyalty programs. For bespoke and latest loyalty strategies, connect with Team Annex Cloud.

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