The instrument “Discount” destroys itself in case of wrong dosage. A discount campaign triggers very quickly no additional purchase more, rather the customer waits for the next discount campaign. And if the customer only buys in discount campaigns, the merchant needs more campaigns to generate more activity. At some point, a ten-percent discount is nothing special anymore. The stimulus must then be further enhanced so that it is still perceived and works – first ten, then 20, then 30 percent. In the end there are hardly any campaign-free periods, a decreasing effect and falling margins. That’s not good, the hardware store Praktiker sends its regards. How do you get out of there?
The answer: substitute discounts. If we take something away from consumers (discounts), we have to offer them something else. Otherwise they are disappointed. And also gone. It is therefore important to continue to provide impulses, or to provide good reasons why the customer should buy products. Except that these reasons ideally do without discounts – or with lower, very purposefully played discounts (“mark-down optimization”). An advantage: This more creative and holistic approach, unlike permanent discounts, does not damage the brand value, but will even strengthen it, because it is actually thought of by the customer.
3 practice-proven alternatives to discount
1. Individual relevance
Behind this is the realization that a customer approach that is as individual as possible is better for the customer. An implementation example is the dynamic newsletter of one of our customers from the omnichannel retail sector. It is an essential communication channel for the fashion retailer. It is plausible that newsletter subscribers buy more if they are addressed individually. However, with more than half a billion newsletter releases per year in up to 15 language versions across the EU, this is also a challenge.
One solution is the integration of a large number of variables that allow content to be personalized and personalized within a newsletter template. Through additional dynamics, content can also be picked up from parallel communication streams or integrated into a following newsletter as a “reminder module”. For example, this does not just leave it with a “wish-article-is-re-deliverable-newsletter” that the customer may not react to in the first step. Through a dynamic module in a parallel-running product newsletter communication, the customer is again referred to his again deliverable wish article – a dynamically individualized incentivization can also strengthen the incentive for the purchase. Each customer receives his own individual version of a newsletter.
Monitoring checks the added value of each dynamization. The more a customer interacts, the better this customization becomes. A large dialogical intelligence is applied to a very large number of recipients, remains operationally efficient through automation, provides added value for customers, and ultimately for dealers.
2. The perfect customer experience
Amazon “Prime” => the customer no longer has to think about shipping costs
“Dash Button” => the customer can order extremely easily
“Alexa” / “Echo” => the customer does not even have to operate a keyboard
It pays off for Amazon to be user-friendly: 85 percent of Prime customers in the US visit Amazon at least once a week and 46 percent buy at least once a week. For non-prime customers, these values are 46 and 13 percent, respectively. A prime customer in the US spends an average of US $ 1,400 per year, compared to US $ 600 for non-prime customers.
3. Dosed incentive or “mark-down optimization”
This means getting along as closely and data-driven as possible with as little monetary incentives as possible. For a data-based dosage of discounts the fashion sector is predestined. The idea is to trade in front of the heavily discounted sales on the principle of scoring affinities and offering individual products targeted, exclusive and with smaller discounts to customers with high product interest and higher price propensity. These customers still have the opportunity to buy before the sell off begins. And look forward to the right article for favorable prices. This saves margin and satisfies the customer.
Petrol station operator Aral shows how metered incentives work in an extremely price-sensitive market, which is also characterized by very small margins and thus little room for discounts: The base discount is very low at one point (value: one cent) per two liters of fuel At a price of 1.50 euros per liter, this is 0.33 percent – but probably no driver (and no company driver) makes this calculation.
Multiple points => the targeted playout of a temporary discount increase (“3-fold points”), for example, at currently high fuel prices, so that the customer still refuels at Aral and not at a cheaper gas station. What many customers do not realize: the higher the price, the lower the discount, as it refers to the number of liters and not the value
“Ticketing at Till” => a coupon on the receipt indicates an additional reward / bonus, variable and customizable
“Cross-selling” (bistro, car wash) => targeted incentives for transactions with higher margins
The bottom line: Controlling data-based incentives, promotions and “mark-downs” is the best way to protect margins, not “sell off” brands and still activate customers in a targeted way, indeed: to inspire. At Aral, the customer feels smart when refueling, without actually having to make big discounts. There is also a lot of potential in the fashion sector in the interplay of promotions and “mark-downs” when these instruments are played intelligently and tailored to individual customers.
All three solutions are based on data and its use for flexible and individual offers. Of course, a comparatively simple method (“20 percent on everything”) is replaced by more complicated, smaller-scale paths – ideally coordinated by all three at the same time. But there are algorithms, marketing automation and artificial intelligence, such as when bots lead a one-to-one dialogue and allow a smooth user experience. Thus, the complexity is overcome, the marketing efficient and every customer optimally served according to his style.
Arno Klinner is Senior Strategic Planner at DEFACTO realations GmbH, the DEFACTO X Group company specializing in integrated customer, loyalty and lifecycle management. Among other things, he oversees the program conception and communication planning. In addition, Arno Klinner is a freelance lecturer at the private University of Applied Sciences Campus M21 in the Department of Business and Advertising Psychology. DEFACTO offers CRM and Loyalty services and software with a focus on retail brands.