The following is from the March 2009 Drilling Down Newsletter. Got a question about Customer Measurement, Management, Valuation, Retention, Loyalty, Defection? Just ask your question. Also, feel free to leave a comment.
Q: Most CRM experts agree that discount is a terrible way to attract new customers. They seem to all agree that these “transaction buyers” are money-losing customers and have no loyalty.
A: I think using discounts profitably for customer acquisition depends a lot on your “Brand Personality” and your business model. That said, often people screw this up and attract the wrong kind of customer.
Q: But, I have seen a lot of different opinions on the use of discounts to increase loyalty and retention among current customers. I have seen experts contradicting themselves on this subject saying that discount is a terrible way to reward gold customers or to move up customers to a “better segment” and after some time they contradict themselves mentioning a successful discount case study (points are a common method used). Jim, what is your opinion about using discounts as a weapon in a retention program?
A: First, we have to define “discount”. Price discounts have the effect of reducing margins, but so do “better service” ideas like “VIP phone lines” and loyalty programs. So you can take your discount on the top line or the operational line, the fact is it costs money to provide good service to best customers in hopes of keeping them. I mean, what’s the $10 million you spent on a CRM system? Choose your poison, it costs money to retain customers.