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How much is too much when it comes to discounts and customer loyalty?

With Black Friday coming up, how should retailers approach discounting in order to generate the best chance of a second purchase? Pini Yakuel, Chief Executive Officer at Optimove looks at why customer retention is often a science more than it is an art.

Black Friday, the annual retail extravaganza which makes headlines with its massive queues and stampedes of eager customers, is seen by many retailers as a make or break moment in their trading calendars. The big draw for consumers is of course the substantial discounts on offer, with many buyers waiting all year until Black Friday to buy their desired product at a knock down rate. But how do retailers arrive at the right discounting strategy for their products, which will help them to drive brand value and build customer loyalty?

Last month, the consultancy EY published some striking figures that revealed retailers’ perceptions regarding customer loyalty and their approach to it. The report showed that only 5 percent of retailers believe that their customers display any kind of brand loyalty and only 24 percent see customer retention as a business priority.

The question of customer loyalty is something that has always been at the forefront of Optimove’s thinking and product offering. With Black Friday coming up, we were intrigued about the effect that this key date can have on customer loyalty and so we set about using our detailed customer segmentation data to figure out how retailers should approach discounting in order to generate the best chance of a second purchase.

Upon analysing the data, we found that when a customer’s first purchase is a discounted item, the likelihood of them making a second purchase rises if the price reduction is between the range of 5 percent to 30 percent. Discounts larger than this appeal to customers who are likely to be on the hunt for a great deal, but with only a small potential to form a lasting relationship with the brand. Below 5 percent and the reduction is too insignificant to make an impact, resulting in little effect in boosting brand loyalty.

Whilst Black Friday is rightfully seen as a critical moment to generate revenue and kick off the holiday trading season, retailers should retain a long-term mind-set when devising their discounting strategy. The incredibly high trading volume during Black Friday is a way of reaching customers who may not have otherwise chosen to shop with a certain brand – it is therefore a great opportunity to build a lasting relationship with them and forge loyalty.

The holiday trading season is fast approaching and retailers must remember that customer retention is often a science more than it is an art – smart discounting practices can be a first step to achieving repeat custom. A data driven approach is often needed to pursue long term relationships with consumers who may not already be familiar with their brand. This not only applies to new customers during seasonal periods, but also to customers in new demographics and even beyond borders.

By Pini Yakuel
Chief Executive Officer
Optimove

Methodology: Optimove’s data come from analysis of over one million transactions by online shoppers over a two-year period.

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