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Quick: what are some of the best way to acquire loyal customers? If you look around online, you might draw the conclusion that providing discounts makes the list.

Billions upon billions of dollars worth of coupons are distributed by brands each year, and increasingly couponing is moving to the web, where bargain-loving consumers have more power than ever to seek out the very best deals available.

Given this, it's no surprise that many companies large and small are trying to carve out digital niches by finding ways to connect brands and consumers by way of the discount.

Take, for instance, the new startup being launched by Zappos founder Nick Swinmurn, RNKD.

As detailed by VentureBeat's Dylan Tweney, RNKD's "goal is to collect as much information about what clothing people actually own, while rewarding them for uploading and tagging photos." In other words, RNKD wants to reward you for sharing what's in your closets -- literally.

What might those rewards look like? Tweney explains:

...the site can build momentum by getting clothing brands to offer real rewards in exchange for demonstrations of loyalty from RNKD’s customers. You say you’ve got 20 different pairs of Adidas, and the photos to prove it? Adidas may very well want to offer you a coupon for your 21st pair at some point. As the company’s press materials describe it, RNKD is “the first universal loyalty program that creates a direct relationship between you and your favorite brands online.”

While this may not cover everything RNKD is trying to do, it raises a question that applies to many startups trying to build services that reward consumers: if you own 20 pairs of Adidas shoes, does Adidas realistically need to give you a discount to convince you to buy the 21st pair? The logical answer: probably not. After all, if you own 20 pairs of Adidas shoes, you ostensibly like Adidas and didn't base your decision to purchase them purely on price.

Which highlights an interesting point about all of the activity around the discount-based rewards so many brands and companies are pursuing online: discounts and the instruments that provide them (like coupons) have historically been used to drive purchases by consumers who are more price sensitive.

Put simply, the consumer who is interested in your coupon and will actually go out of his or her way to use it is the consumer who will probably never pay full price for your products. Conversely, the consumer who is less sensitive to price is less likely to use your coupon, so you don't have to lower the prices of your products globally just to sell to this consumer.

From this perspective, the problem with the focus on providing discounts to loyal customers becomes clear: they're precisely the consumers you don't need to discount for! For this reason, brands active online, particularly in the social media space, need to think carefully about platforms that confuse loyalty and discounting. They don't always go hand in hand, and nor should they.

Patricio Robles

Published 17 November, 2011 by Patricio Robles

Patricio Robles is a tech reporter at Econsultancy. Follow him on Twitter.

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Tim Watson

Tim Watson, Email Marketing Consultant at Zettasphere

Spot on.
Broadcast of coupons and discounts through traditional offline media may get picked up by a loyal customer, through they are really intended to acquire new customers typically.

Moving the tactic to online social means you are skewed to your current customers. I read 84% of brand fans are already customers. So as you say a Facebook discount is doing something different - giving money away.

Email marketing allows better targeting so that discount nudges can be applied to just those customers who need it.

about 5 years ago

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Stormy

Discounts only really need to be used to gain more customers, these customers are then likely to become loyal to your product.

about 5 years ago

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James

I think coupons are a great way of gaining attention and building a client base.

about 5 years ago

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Brandon Shockley

I agree with Tim, but for a different reason. Part of the value driver behind the coupons on a print insert is geographic loyalty, a vital ingredient that is lost online. Online coupons tend to incentivize deal hunting (i.e. Groupon).

about 5 years ago

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Steve Evans

There's a very simple rule with e-commerce which has been widely discussed over many years.

Discounts don't result in loyalty, but discounts to reward loyalty work well.

Hence the Groupon problem (which was always going to happen) the more you try to acquire customers through discounts, the less loyal they will be.

Discounts are for sales, loyal customers/followers, fixing customer care issues, dumping stock you need to shift etc. Not for building a loyal customer base.

about 5 years ago

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Lee Brown

In over 10 years in ecommerce I have always steered away from coupons and discounting. Unless you have to do a short term promotion for competitive reasons I don't feel that it builds a decent customer base. I avoided the voucher sites like the plague and I can't understand why businesses use these. The only way to build a business on a firm foundation is to offer good products and the cheapest possible price (so you can stay in business) backed up by outstanding service.

about 5 years ago

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Madigan Pratt

Most companies today are concerned about reputation management. Consider this:

Researchers at Boston University and Harvard analyzed thousands of Groupon and Living Social deals. Their conclusion: "Discounting can put long-term reputation at risk. Fans of daily deals were on average hard to please. After they ate at the restaurant or visited the spa, they went on Yelp and grumbled about it. This pulled down the average Yelp rating by as much as half a point." OUCH!

Find Research at: http://arxiv.org/abs/1109.1530v1

Discounting when used prudently can be effective, but far too many companies today are using "price" as their chief marketing weapon. Bad form.

about 5 years ago

Patricio Robles

Patricio Robles, Tech Reporter at Econsultancy

Steve,

"Discounts don't result in loyalty, but discounts to reward loyalty work well."

Is there a place for discounts as rewards? Sure. There's usually a place for a lot of things in the marketing mix.

But as I noted, if you're Adidas, you do not reasonably have to provide a discount to a customer who owns 20 pairs of your shoes as a reward to drive the sale of the 21st pair. Here, an intangible reward, such as early access to new products, is likely to be far more productive.

I think a big issue here is that quite a few digital marketers don't know the history of the coupon. Again, its primary purpose has always been to drive purchases by price sensitive consumers without having to lower prices for less price sensitive consumers, thus maximizing overall price/revenue. It was not created to reward less price sensitive consumers, who for obvious reasons tend to be the easiest to build loyalty with without the use of discounting.

about 5 years ago

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