Every business wants its customers to be loyal, i.e. customers choosing to buy products from their business, rather than the competition. Offering promotional discounts is an approach that is universally followed to garner this loyalty. In Free: the Future of Radical Price, Chris Anderson provides several examples of how discounts lead to other avenues for sales and relationships, but critics remain unconvinced. As YouTube has remained a black hole for Google and with Facebook churning out really low conversion rates for advertisers: Is “Free” or discounted prices really the way forward? What do we, as customers want? Do discounts really generate loyalty or do they just mess up the market?
A campaign based on promotions definitely has great uses. Some of them are:
But our question takes the opposite view: How do we get customers to be loyal despite price premiums, and especially when it comes to a long term & profitable relationship? Our framework points to the three foundational elements:
As we can observe all around us, the framework for loyalty seems to be gravitating towards gratification value which is manifesting itself as demand shifting, low switching barriers and a tendency to reduce the price to value perception. Worse yet, especially in this new digital economy, the products themselves seem to be gravitating towards free, with the real revenue streams implicitly hidden from consumers. Not necessarily a bad thing, but it nevertheless causes the real power of the business model to be ignored, reflecting it instead in terms of the free.
No doubt factors such as product quality, first to market, user base and perception are really important. Google or Facebook are great examples where their sheer mass (Facebook) and quality (Google) of the offering has allowed them to surge ahead. Especially for Google, the quality of the output has been unsurpassed. But competition comes from unexpected sources. MasterCard and Visa are threatened by the mobile payment providers and banks. Similarly, digital ecosystem networks based on specific interests such as Apple iTunes riding on the wave of a digital delivery and aggregation, have usurped the established music industry model.
Advances in not only digital, but business in general are only expected to grow. What can companies do to retain their customers? Here’s an approach:
The means to achieve the following are easier and yet complicated in the world of smart phones and social media. We can reach customers quickly and everywhere, but are we starting this encounter with an offer of gratification value or are we engaging in a slow dance for a longer term ecosystem? Advertising and spreading the word is nice to have without a side effect, and a much sought after goal in the frenzy of blogs and Facebook likes. But for brands that are already great, it must never be at the cost of diluting the power of what’s at offer.
You’ve worked hard to create the brand, and if it’s linked to price alone, the game is over.