Discount or Loyalty Program: Which Strategy Wins Customers?

19-Mar-2024

The #1 reason for business success is much simpler than it seems: customers who continue to come back. While attracting new customers is important, the secret lies in what makes them return.

Making sure more customers keep coming back can make a big difference in how much money a company makes. According to the report, retaining onto an extra 5% of customers can significantly increase profits, from 25% to 95%

Think about your favorite coffee shop, where the waiter welcomes you with a warm smile and prepares your usual brew even before you say a word. At times , they delight you with a free pastry, a sample of their newest blend, or a small discount as a token of gratitude for your regular visits.

“It's more than just the free pastry or discounts ," you realise. "It's about the personalised service and the sense of connection that beckons you for another cup.”

Every business is different, but what counts is how they plan to boost sales and keep customers. This is where the pivotal question emerges: should a business opt for a loyalty program or discount offers?
So, let's find out the perfect strategy for YOUR BUSINESS to turn one-time shoppers into loyal customers.

Discounts- The Sprinters

Discounts are like sprinters. (Sprinters are the super-fast runners, who run fast but for a short distance.)

They get your heart racing fast with a big, bold "SALE" sign, which feels great.

Discounts are price reductions offered to customers, effectively lowering the cost of products. They are one–timers, meant for current purchases, boosting immediate sales, clearing stock, and building customer loyalty to enhance business success.

Discounts bring immediate gratification, just like the surprise joy of finding $20 in your pocket when you least expect it. For example , you walk into a store, and there's a 30% off sign on your favorite brand. The thrill and contentment of such moments are unparalleled.

This offers immediate savings without any conditions. Customers benefit from a reduced price right at the time of purchase. It's a simple and attractive deal that appeals to anyone looking to save money.

But can a discount promise rewards on future purchases? That's where loyalty programs step in to make that possible.

Loyalty Programs - The Marathon Runners

Loyalty programs are like marathon runners, building points with every purchase. The more you shop, the more you earn. (Marathon runners are steady runners, who build stamina to cover long distances.)
It's the company's way of saying thanks to their loyal customers.

Loyalty programs are customer engagement strategies that reward repeat purchases with incentives, nurturing strong relationships and brand loyalty. These programs reward customers with discounts as well as points. As points accumulate over time, customers can redeem them for additional discounts on future purchases.

The loyalty program meaning extends beyond simple rewards; it's about creating an emotional bond between the brand and its customers. Moreover, the Loyalty program business model prioritises long-term customer engagement over immediate short-term sales.

Customers earn points every time they shop, and these points accumulate, leading to rewards and special discounts. The more they shop, the more they get rewarded providing them with access to higher loyalty bonus points redemption value.

Offering exclusive early access to new products and personalised greetings are effective strategies that effortlessly foster an emotional connection with customers, making them feel valued and appreciated.

In the first scenario, the coffee shop offers discounts. In the second scenario, they focus on building customer loyalty through high-quality products and excellent service . They provide discounts as well as additional points through a customer loyalty program.

The discount coffee shop sees a rush of customers, but they're always on the lookout for the next best deal and vanish as soon as the discount ends.

While in a loyalty program bakery, customers become familiar faces, eagerly collecting points for their next free purchase. This bakery doesn't just sell pastries; it sells an experience and the thrill of the chase which attracts customers for more.

Therefore, a loyalty program proves more cost-effective for the coffee shop. The points system keeps customers engaged and returning for more purchases.

This is where the loyalty program benefits truly shine, boosting customer happiness and business profits— a win-win strategy for businesses as well as consumers. Customers get discounts as well as exclusive add-ons, which is a cost-effective strategy for businesses.

But why opt for a customer loyalty program over a straightforward discount?

The answer is customer retention. Customer retention refers to a business's ability to keep its existing customers returning and purchasing repeatedly.

Loyalty programs for customers are engaging adventures. Who doesn't love collecting points, tracking progress, and unlocking new rewards? This element of gamification adds a layer of fun, giving a sense of achievement, keeping customers engaged, and coming back for more future purchases.

It also creates a habit, a comfort zone, that customers are reluctant to leave. It's the "old habits die hard" phenomenon at play. Every point earned is a step closer to a reward, making each visit not just a transaction, but an exciting part of an ongoing adventure .

A study by Capgemini revealed that customers with an emotional connection to a brand have a 306% higher customer lifetime value.

Conclusion

Discounts or Loyalty Programs?

Deciding between offering a discount or a loyalty program is like choosing between immediate gratification or opting for a reward that grows over time. Utilising discount coupons can serve as an effective method for attracting customers, while loyalty programs for customers are instrumental in getting repeat business, and enhancing customer relationships over time making it seem like a promising business with a strong foundation.

Based on the above insights, it is evident that while discounts serve to attract, loyalty programs are designed to retain. With a loyalty program, customers enjoy not just instant savings but a series of additional benefits that enrich their experience over time.

This dual approach not only captures immediate interest but also secures a future filled with returning customers, proving that the combined strength of discounts and loyalty programs can be a formidable force in any company's growth strategy. They significantly influence a company's market valuation while strengthening customer relationships with the brand.