pricing strategy

Why Are You on Sale When You Don’t Need to Be?

Now, with AI-enabled predictive modeling and a growing understanding of behavioral economics, companies are quite literally able to see into the pricing future.  So why are you always on sale??

Editor’s Note:  Pricing strategy has come a long way since the (fairly recent) days of hope & gut feelings.  Now, with AI-enabled predictive modeling and a growing understanding of behavioral economics, companies are quite literally able to see into the pricing future.  So why are you always on sale??

Many retailers offer endless marketing offers and promotions to try and bring customers back in store or online. Every week, there appears to be some form of sale on, no matter where you go – big red sale signs plastered all over the shop windows, often under the guise of ‘special event’ sales.

By Michael Bernard

The same goes for direct marketing. Emails are being sent (spammed) to customers announcing a special sale every few days. Emails which make no attempt to tailor or personalise to each individual customer. As we’ve said before though, there is no such thing as ‘one size fits all’.

Whilst we appreciate how competitive the retail market is at the moment, there are more effective and sustainable ways to market to your customers – ways which won’t leave you out of pocket, but will generate long-term loyalty.

Don’t set the wrong expectations

If you’re always on sale – you’re setting an expectation. So each time a customer shops with you, they’ll expect some form of discount, and won’t shop with you if they don’t receive one.

You are influencing and encouraging this behaviour. Whilst price is important, we suggest using it only occasionally (or to influence a particular behaviour in a customer, such as referring a friend), or the customer will expect it all the time, or hold off purchasing until you release your discount emails. Think about the impact of this on your brand reputation and how you want to be recognised in the market.

Not all customers are equal – true value of customer segmentation

It’s important to remember that customers are at completely different stages in their lifecycle, therefore they need to be communicated to differently. They don’t appreciate receiving messages that are irrelevant to them, even if you are having a sale. Loyalty cannot be bought.

80% of your future business will come from 20% of your existing customer base¹. Therefore, how you treat them really matters. Do you know who your most profitable customers are? Customology help brands use the customer and transactional data they have already captured to segment customers into different customer groups. One segmentation approach includes identifying the following groups:

  • Superstars: Customers who spend the highest amount and shop most frequently.
  • Active Repeats: Customers who have made multiple purchases.
  • Lapsed Repeats: Customers who previously made multiple purchases, but don’t come back as often as they used to.
  • Recent One-offs: Customers who have recently made their first purchase.
  • Lapsed One-offs: Customers who previously made a single purchase, but never returned.
  • Lost Superstars: Customers who used to spend high and shop frequently, but have not returned.

Asides from keeping your superstars happy and engaged with your brand. How do you turn the active repeats into superstars, and increase the amount of money they spend with you? How can you re-engage the customers you have lost or are in the process of losing?

When you look at your customers through this segmented lens, you realise that sending the same sale/promotional email to all of your customers is unlikely to have any impact. Each group needs (and expects) a different type of conversation with your brand.

Effective customer segmentation enables you to identify and recognise customer behaviours. Once you have these insights, you are in a stronger position to reward the type of behaviour you want to influence. Let’s put this into context. A coffee shop for example may have a group of customers who purchase coffee regularly, but don’t purchase any food. An offer on coffee won’t make them spend any more money with you, however an incentive on the food counter might. Reverse this for the customers coming in to buy a sandwich, cake or banana bread and offer an incentive on hot drinks. This approach means that you can increase your average purchase value and create new habits for the customer.

Consider how you are rewarding your loyal customers

Rewarding loyal customers with discounts is counter-intuitive (they would have purchased from you anyway, just ask any franchisee for their opinion on this!). Instead, reward them with value adds of high perceived value, low-cost incentives. For example invitations to exclusive events, input and early access to new products, encourage them to sign their friends up in order to receive benefits themselves. This approach makes them feel appreciated and recognised, and not just a number on a database.

You win on price, you lose on price. Being on sale is not the answer to company growth. You may be offering discounts – but to the wrong people, and through the wrong channels.

Segment your customers to learn exactly where in the customer lifecycle they are, only then will you know what type of conversation you need to have with them, enabling you to communicate with them in targeted and relevant ways. Find out who your superstars and active repeats are – and ways to keep them happy and engaged with your brand.

The more you learn about your customers, the better chance you have of marketing to them effectively. There is no ‘one size fits all’.

Michael Barnard oversees a team of Customologists with combined talent across strategy, data science, and technology, who help brands understand and influence customer behaviours. Michael’s experience in human centred design is foundational in our principles of design thinking and starting with the customer, focusing on how brands engage, keep, and grow customers.

This article first appeared in Customology. Photo by Benedikt Geyer on Unsplash.

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