The Price Isn’t Always Right: How Courting Customer Loyalty Through Discounts Fails

August 25, 2010

Everyone’s on a paper chase these days. Companies are squeezing dollars until they holler, and consumers are haggling like veterans to grab every bit of savings they can from almost every store interaction.

But what happens to those stores that focus on price as the primary means to nurture their consumer base? Do they always get the business? The answer is yes and no. Yes, if they offer the best deal that gets them the sale in the short term, but no, if the goal is a long-term customer relationship.

“Consumers motivated by price tend to not be very loyal,” says Stephanie Kendall, executive consultant for Kenexa, one of the leading agencies in industrial psychology. “While you can pull them away with a lower price, it’s harder to keep them unless you continue to give them price reductions and that will start to eat into your gross margin.”

Price is more important in consumer selection given the bigger economic picture, but when things turnaround, companies have to find another way to keep customers coming back, according to Kendall.

You can keep customers with things such as quality, service, something unique about your product or service, but for the long term, price is not the way to go.

Tapping Into Emotions

To reel in customer dollars over the long term, it’s all about building an emotional attachment to the brand or to the provider. That emotional attachment can prompt people to go out of their way to patronize a store, and even spend a little bit more at the store when they can.

“Look at how you advertise, how you merchandise, the experience someone has within the store; those are some ways you can build that emotional attachment, which tends to be stickier than the short-term price situation,” Kendall said.

target-logo-300x300Consider how Target has successfully captured some of the perennial emotion around fashion by engaging the world’s top designers for short-term, exclusive engagements.

Not only will customers, like me, stalk the website to get that cute Zac Posen dress before it goes the way of the limited-fashion-edition dodo, I’ll pay what they ask. There’s no question of waiting for the sale, because if I do, I may miss out entirely.

Focusing solely on price can also make a provider vulnerable to the competition. Our DSL-connected, global marketplace makes it uber easy to shop, and deals are everywhere. There are entire sites devoted to bargain hunting that will deliver customized lists of products directly to your inbox. If there’s nothing special about a company offering a product or service besides price, it has no way to differentiate itself or to ensure that it will be the one of several available options that wins the sale.

Dr. John Fleming, chief scientist for customer engagement at Gallup Consulting and author of Human Sigma: Managing the Employee-Customer Encounter, says nurturing a consumer relationship based solely on price essentially commoditizes a product. That means when somebody else comes in with a lower price, the thing that makes you special goes away.

This brings us back to the importance of a marketplace brand and brand promise. That brand promise tells customers who you are, what you will deliver, and most important, puts a little halo over your company to highlight it from other competitors in the same space.

“You need to engage customers emotionally as well as rationally,” Fleming said. “Price is more of a rational consideration that leaves out those important emotional considerations.”

Looking Through the Customer Lens

Fleming said there are four lenses through which customers evaluate their relationships with companies:

  • Confidence: You’re a name I can trust.
  • Integrity: You treat your customers fairly, particularly when there’s a problem.
  • Pride: I feel good about doing business with you.
  • Passion or feeling irreplaceable: I literally can’t imagine a world without your company in it; the ultimate emotional connection.

Meet those emotional conditions and customers will spend more, more often. They’ll pay more for products and services, use up fewer resources solving problems, and speak well of you in the marketplace, all of which is good for business.

Plus, Fleming said consistent, exceptional delivery on brand promise allows a company greater latitude in terms of pricing, which means, ta-da, it can jack up the price.

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