How to Reduce Discounts and Keep Customers Loyal

Discounts constantly eat into the profit margin. Moreover, customers get used to them, stop responding to promotions, or go to competitors for a bigger discount. As a result, revenue does not grow or even falls. Here's how to stop giving discounts without losing customers.

Discounts are a great tool to stimulate purchases, but they need to be used wisely. The strategy of “champagne for everyone,” where you constantly give discounts to customers, only impoverishes the business. It does not create brand loyalty or increase the number and amount of purchases.

Typical Discount Logic The customer does not want to buy – offer a discount. They buy too little – offer a bigger discount. They buy the wrong product – perhaps give a discount on another product as well. And so it goes in circles. Then one of three main problems arises (sometimes all at once). Our WGG advertising agency will explain what these problems are and how to solve them.

Problem #1: Declining Business Margins A discount is a gift that requires money, and it comes out of your profit. Whether you take 15% or 40% off the price, it is still a reduction from potential revenue without any future compensation. Not very well thought out, right? One solution to this problem is to offer discounts only to new customers.

If what you sell has value and is truly needed by the audience, the main task is to engage them and encourage 1-2 purchases. Then the newcomers will form an opinion about your products or services. If they are satisfied, they will continue to interact with you without discounts. However, a bonus system can be helpful. It ties customers to the brand, helps stimulate repeat purchases, and, most importantly, takes away less than it brings in. According to statistics, only 30% of bonuses are redeemed, while a discount eats away at the margin from every purchase.

Problem #2: Discount Cards Circulate, and Customers Go to Competitors Many people love to help their friends and family, so when asked, “Do you have a discount at this store?” they answer “yes” and gladly lend their discount card. It seems harmless, but you end up wasting discounts on one-time purchases by people who are not particularly interested. A pleasant solution for both you and your customers is to switch from a discount system to a bonus system, which:

• Effectively ties the buyer to your brand through accumulation and delayed redemption;
• Helps stimulate repeat purchases (with regular mailings and reminders);
• Spends much less budget and pays off.

Overall, bonuses work much more fairly: you reward those who have increased your business’s profit, not those who did not want to buy. The former are likely to return and purchase again, while the latter will most likely go to a competitor with a bigger discount.

Problem #3: Customers Do Not See Value in the Discount Discounts often become the norm for the audience. The sense of benefit and reward is lost, conversion rates for promotions drop, and consequently, business profits fall. The ideal solution is to move from mass promotions to personalized ones.

The fact is, even a 90% discount might not catch the customer’s attention. Their inbox is flooded with “the best offers you can’t miss.” They have one wallet, but many offers. Why should they choose yours?

What really works are mechanisms based on customer behavior. Each of them solves its own task. For example:

• The customer often visits your store but buys little – use a mechanism to increase the average check. For example, the “1+1=3” promotion.
• The customer makes high-value purchases but appears once a year – use a mechanism to increase repeat purchases. For example, “3rd order free until December 23rd.”

And so on. You can segment customers based on behavior using RFM analysis. It’s great if you can track product preferences. Then you can personalize promotions here too, offering a discount not on everything but on the customer’s favorite product. They are more likely to appreciate such a gift.

Add value to the product in your newsletters and advertisements. Introduce customers to the benefits of the products, tell them about your company, and sell the idea of engaging with you. This is a fundamental marketing tasks that is often forgotten because the focus is too much on describing discounts.

Of course, if you suddenly decide to stop giving discounts one day, your audience won't understand. They will likely go where they feel valued and rewarded. Where it's beneficial for them.

There are three important principles for transitioning to a new system. These help maintain both customer loyalty and your profits, not just one or the other.

Keep Them Informed Be sure to inform your customers that you are switching to a bonus loyalty system. Otherwise, endless conflicts will arise when a customer comes in, presents a discount card, and the cashier says, "You don't have any discount." Send out a newsletter to all customers.

Be Open and Clear Clearly explain the terms of the new system in the newsletter and on the back of the virtual loyalty card.

• How many bonuses you award and for what
• How much can be redeemed at once (make sure to set redemption limits)
• How many bonuses are provided for holidays (birthday/New Year, etc.)

Reward When transitioning to a new system, it's important to compensate for the loss. Instead of the lost discount, credit the customer with bonuses on the "new card" based on the amount of their previous purchases. The more the customer bought, the more "transitional" bonuses they receive.

It is not the discounts themselves that attract and retain customers, but clear benefits and a positive experience with the company. Therefore, we incorporate three main rules into our marketing strategies:

Relevant Offers Study the demand and behavior of the audience to sell products that are necessary and important to the customer.

Reward Mechanisms Instead of Mindless Discounts Ensure that every promotion addresses a specific goal (increase repeat purchases, increase average check).

Fair Rewards Reward those customers who buy and increase business's profit.