Is it the lure of discounts or the magic of unforgettable experiences that keep customers returning? To succeed in the current scenario, retail will have to search and use the best strategies in the market to win and make the customers want to return. In the previous days discounts and promotions have been used as the go-to strategy for customer loyalty but with the evolving customer expectations, experiences are emerging as a powerful tool in loyalty-building. Therefore, the retailers need to understand which approach will be efficient in delivering the highest ROI.
In this article, we will dive deep into the pros and cons of both approaches and explore how retailers can strategically blend both to cultivate long-term customer loyalty.
Why Discounts Hold a Powerful Place in Retail Loyalty Program?
Discounts, for the longest time, have been an immediate way to drive sales and reward loyal customers. Retailers have offered discounts, through exclusive offers, holiday promotions, and even loyalty program perks, which have been effective in attracting customers. With the SAP Emarsys data, it was observed that 57% of CPG shoppers are loyal to the brands that offer discounts. This is because discounts offer a tangible, measurable benefit that customers can instantly appreciate.
Immediate Gratification: Discounts tend to create an immediate impact on the purchase decisions of the customers making them feel they are getting a great deal.
Easily Trackable ROI: The best part about discounts is that they are quantifiable. It means that they directly show up in sales metrics which makes it easier for retailers to measure success.
Encourages Repeat Purchases: Regular discounts and offers can make a brand’s products feel more accessible, encouraging customers to return for the next deal.
While discounts can help drive short-term sales, they often don’t foster lasting loyalty. Relying solely on discounts may also create a “discount dependency,” where customers only purchase when deals are offered.
Personalized Experiences: Redefining Customer Loyalty
With the changing times, consumers seek more than just savings. Today’s customers look for memorable interactions with brands that make them feel valued and understood. Experience-based loyalty programs tend to tap into customers’ emotions which creates a deeper connection with the brand. This insight allows the brands to make sure that the consumer experiences are personalized with exclusive content and first-access perks.
Impact of Experiences on Loyalty
Emotional Connection: Experiences help in building a personal bond between the customer and the brand which creates memories that discounts alone cannot match.
Higher Customer Lifetime Value (CLV): Customers who feel brand engagement are likely to spend more over their lifetime, as they feel a sense of loyalty and belonging.
Differentiation: Experiences allow brands to stand out in a crowded market by offering something unique and meaningful.
For instance, brands like Sephora offer their loyal customers early access to product launches, exclusive events, and personalized beauty consultations. Providing this type of experience creates an elevated response that resonates on a personal level.
The Psychology of Discount Vs. Experience
Psychologically speaking, discounts and experiences activate different parts of a customer’s psyche. For instance, discounts tap into the desire to complete a “deal,” which triggers the reward center of the brain and creates a sense of satisfaction from savings. On the other hand, experiences, appeal to emotional needs and self-identity which allows the customers to feel seen, valued, and connected to the brand.
Therefore, considering the two, for long-term loyalty, experiences create a lasting connection, while discounts act like a quick fix, and balancing both will be a key to a holistic loyalty strategy.
Impact on Brand Perception
Your choice of loyalty strategy will reflect the value of your brand along with how you want to be perceived by customers.
Discount-Centric Brands: Retailers that use discounts as the strategy for retention are often perceived as affordable and accessible but these brands can struggle with customer retention if competitors offer similar deals.
Experience-Centric Brands: Brands that focus on providing positive experiences to the customer are presumed as customer-focused. These brands attract customers who are willing to invest in the brand beyond just the cost savings.
Apple is a perfect example of an Experience-centric brand. It is a top mobile brand that rarely offers discounts but still holds a 17.7% market share. Achieving this number has become possible for Apple because they create loyalty through customer experience, product quality, and brand exclusivity. This approach has positioned Apple as a premium brand with a highly loyal customer base.
Driving Loyalty with a Blended Approach: A Strategy of Discount & Experience
To improve your brand loyalty is not necessary that you have to choose between discounts and experiences. Instead, you can blend both approaches can help retailers create a balanced loyalty program that caters to different customer preferences and shopping behaviors.
What can be done?
Tiered Loyalty Programs: Brands can provide a mix of benefits (both discount and experience) at different levels. For example, entry-level tiers can offer discounts, while higher tiers provide exclusive experiences, early access, and access to specific discounts for loyal customers.
Seasonal Discounts with VIP Perks: Retailers can provide holiday discounts while also giving loyal customers early access to deals or a special “members-only” event.
Personalized Rewards: With the advent of technology, brands can now use customer data to tailor loyalty offers where they can combine discount vouchers with experience-based perks based on individual preferences.
Starbucks’ Power Move for Driving Loyalty
The reward program of Starbucks is a winning strategy of the brand that incorporates both discount and elusive experience strategies. The company allows the users to collect stars on a minimum purchase amount (which is Rs.400 or Rs.500 depending upon the card type) showing transactional loyalty. Additionally, the high-tier members can also enjoy free birthday drinks and personalized orders which acts as a positive experience-based loyalty strategy.
Reshaping Loyalty: Experience-Driven, Data-Enhanced
The future of loyalty revolves around using customer data to personalize both discounts and experiences. Retailers can use advanced analytics and AI to create hyper-personalized loyalty strategies that resonate with every customer. This approach allows retailers to track customer preferences, buying habits, and engagement patterns, which, in turn, can help them deliver relevant offers that strengthen loyalty.
Predictive Analytics: Organizations can leverage data to anticipate customer needs and provide personalized experiences at the right time.
Behavioral Segmentation: Retailers can also use data to identify consumers who prefer discounts over experiences (or vice versa) and tailor rewards accordingly.
Feedback Loops: Brands can gather insights from customers on what loyalty benefits they value most and adapt programs to meet these preferences.
Conclusion: Strategies The Brings in Loyalty
The debate between discounts and experiences is not about choosing one over the other but finding the right balance. Retailers should concentrate on creating a loyalty strategy that reflects their brand’s identity while also addressing the diverse motivations of their customer base.
Integration of discounts and experiences in the marketing strategy and enhancing them with data-driven personalization will allow the retailers to craft a loyalty program that captures hearts, drives repeat business and builds a brand that customers genuinely connect with. To gain customers’ attention and regularity, the most successful brands will not be those that meet the customer demands instead the ones that exceed them, turning one-time buyers into lifelong advocates.
