Loyalty and Sales Promotion

I read a rather damning case-study about Groupon and the way in which participating in this program (which offers discounts of more than 50% off of regular price when a sufficient number of people indicate an intention to take advantage of a deal) will create a very brief spike in sales, but have a long-term negative effect on customer loyalty.   Not only do those who show up to take advantage of the deal fail to become loyal customers, but the deal itself and the flood of bargain-seekers makes existing loyal customers feel cheated.

I couldn’t disagree with the premise of the study, but it does not seem entirely fair to single out one company for consternation.  Nor does it seem entirely fair to suggest that Groupon is to blame for the problem – but instead it is the retail establishment, desperate to drum up business, that leverages this service that is likely most to blame – just as we do not blame the automobile or the alcohol for an incident of drunken driving, but the individual who failed to exercise good judgment and self-restraint.

Long before the internet came into existence, retailers used sales promotions of various types to bring in the hordes: coupons, sales events, direct-mail offers, and other similar tactics had the very same effect, just on a smaller scale and over a longer period of time: they brought in people who were only interested in an advantageous offer, for only as long as the offer was valid, who would not later be willing to consider purchasing the product at its regular price.

Likewise, long before Groupon came into existence, retailers bewailed the manner in which they were hoist by their own petard: those who held regular weekly sales events found their shops empty on dates when they were not offering deals, and those who offered coupons regularly found that no-one would order their product unless they had a coupon.   That is to say that customers had no loyalty to the retailer, and only came looking to take advantage (in every sense of the phrase) of a discount offer.

Not only does sales promotion attract shoppers who have no loyalty, it also diminishes the loyalty of customers who are willing to shop the retailer for reasons other that price.   After all, it seems foolish to pay full fare when a discount is available, or would be available in a very short time – and in that situation anyone who is loyal to the brand feels that they are being punished for their loyalty, whether it is the financial loss they feel they have incurred by purchasing at full price or the shame they feel at having been so easily deceived.  (It is in fact quite common for these very same brands to include copy in their promotions that is very insulting to those who pay full price.)

It is in that way that brands that bemoan the loss of customer loyalty but continue to discount merchandise as a matter of course that seem rather foolish – as their own behavior has done much to discourage and destroy loyalty to their brand, to drive away loyal customers in catering to the demand of bargain-seekers, and thereby to ensure that no-one purchases from them except in instances where they have set themselves up to as an attractive mark for the kind of person who seeks to take advantage of them - and they get exactly what they worked t ogain

So in the end, it would be just to suggest that retailers who smother loyalty by offering special deals are getting what they deserve –they are reaping exactly what they have sown and have worked hard to earn the low grade of customer that they have chosen to pursue.