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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.