Customers whose first purchase is discounted by over 30% are less likely to buy from that brand again, according to a new research, in a blow to the sales strategies followed by many retailers in the upcoming holiday season.
Slashing prices is a major strategy for acquiring new customers in the last months of the year, but data from customer engagement specialists Optimove shows that as the discount rises over 30%, retailers are in danger of attracting ‘cherry pickers’. These are shoppers who buy a single bargain, but will not be drawn by the discount to buy more from the retailer at a later date.
However, of the customers whose first purchase is a discounted item, discounts of 5%-30% do help to ‘charm’ individuals. Up to the level of the 20% discount mark, the likelihood of this customer making a second purchase rises.
But items discounted by 30% or more are likely to bring in ‘cherry pickers’. These customers have little future value, so the large discounts aimed at them can make a negative impact on the bottom line, Optimove suggests.
A report by EY recently found that only 5% of retailers believe their customers remain loyal, and only 24% see retention as a top priority.
Optimove managing director of EMEA Alon Tvina commented: “Over the holiday period, retailers are waging all-out war for new shoppers, but acquiring one-time shoppers is extremely costly, especially when retailers use price slashes as a major acquisition strategy.
“The victory of acquiring a new customer may well be hollow: customers making the most of large discounts on offer over the holidays can end up hurting profit margins quite substantially, if they don’t become more regular shoppers.
“Discounts of over 30% do generate revenue from one-off purchases, but they only bring in profit in the short-term. These customers are unlikely to make a second purchase unless it is similarly discounted.”
He added: “On the other hand, not only do minor discounts of 5-30% cut less into profit margins, but they tend to have the effect of ‘charming’ customers, who become more likely to come back for a second purchase.
“The holiday season is a huge opportunity for retailers to forge more permanent relationships with new customers, but getting discounting strategies right requires a deeper understanding of different types of customers and their behaviours.
“Using discounts smartly to attract customers, and keep them, will give marketers an opportunity over the coming months to convert one-time buyers into loyal, returning customers. But to do this they will have to look at the data, testing the impact of marketing strategies on customer engagement rather than short-term sales, and adjust offers accordingly.”