Discount codes and vouchers are like a Class A drug – it's time to wean your customers off
In the first few weeks of 2015, we have already seen multiple announcements that excessive discounting severely dented retailers’ margins in Q4. Now may be a good time to consider one type of rampant discounting: discount codes.
Vouchers as Class A drugs?
Indiscriminate scatter-gunning of discount codes cheapens your brand by fostering a customer base that always expects discounts.
Recent research by Mintel found that a third of British diners regularly use vouchers, and many only visit chains with a special offer. In the casual dining industry, vouchers have been compared to Class A drugs, as restaurants get addicted to the customer rush that tends to arise from offering discounts.
It’s just too easy for marketers to turn to this ‘quick fix’ discounting strategy to boost sales, but hard to quit afterwards. We end up with a real ‘tragedy of the commons,’ competing away margins by chasing price-sensitive switchers.
How many of us have a wallet stuffed with money-off coupons and discount membership cards? More than likely, you didn’t have to do anything to earn those discounts. They just fall out of magazines, you get handfuls of them in restaurants, and you can Google them in two seconds. I even have coupons for chains I don’t like and have no intention of ever visiting!
Go cold turkey and rethink loyalty; there is a better way to engage with potential customers without cheapening your brand.
Start with your most valuable customers
To paraphrase Milton Friedman, rather than ‘dropping vouchers out of a helicopter’, why not concentrate on your most valuable customers; those likely to become loyal repeat visitors?
You should be encouraging your existing customers to tell your next customers about you. Given that your customers spend 80 per cent of their time online on social channels – this is where you should foster conversations about your offers by being timely and relevant.
Spice up your promotions
Rather than constantly repeating bland 30 per cent off coupons, mix up your promotions. Surprise and delight customers with different ways to get a good deal. One week it could be a deal where the price drops, and the next you could get more for the same price, each based on the number of joiners. Or you could try ‘stretch and save’ promotions (e.g. spend over £50 for 10 per cent off), where the ‘save’ element improves as more people get on-board.
By using imagination you can avoid the boredom of being ‘just another coupon deal’.
Don’t be frightened to ask customers to pay something upfront
Another problem with free vouchers is the lack of ‘skin in the game’. That’s why you find so many discarded on the pavement.
If you’re offering a great deal, why not ask customers to pay something upfront? ‘Buy this £20 voucher for £15’. Your fans know it’s a great deal, but what about adding a dynamic element, like the voucher value increasing to £25 or the price dropping to £10 when enough people buy?
Make your customers work for deals
'Bake in social’ from the outset. Ditch the freebies and dumb, fait accompli discounts which no one ever shares – and offer smart rewards instead: offers which depend on sharing, and which improve as more and more people participate.
Make it fun
Add in gamification with competitive elements to make the whole thing more fun. If I can prove I’m one of your best customers and get full red-carpet-treatment in return, that means you‘re rewarding the right people.
It’s a simple formula: communal rewards to inspire mass sharing, personal rewards to trigger passionate evangelism.
Making buying truly social
By combining co-creation, dynamic deals and gamification – your promotions can become truly social. Debenhams recently ran a successful gift card campaign where the value increased as more people bought, encouraging participants to mobilise friends and family. Not only did this re-engage existing and lapsed customers, but it brought in entirely new buyers, almost all of whom spent considerably more than the gift card value in store or online. Along with the likes of EE, Tesco and Sony – all of whom have been experimenting with social selling strategies – Debenhams really understand why Smart Rewarding is far better than Dumb Discounting!
Gideon Lask is founder of social selling platform Buyapowa