We live in an age of deep discounting where there is no dearth of offers from merchants. While some merchants can afford to give discounts and still maintain a margin, others are doing it so they do not lose out to competition. It is already known that discounting helps in acquiring new customers but it does not guarantee repeat business. On the other hand a customer loyalty program has been proven to be effective in retaining customers. There are three reasons why merchants should offer a loyalty program to their customers vis-a-vis discounting:
1. Customers need a strong reason to come back: A loyalty program rewards customers either in the form of cashback points which can be redeemed during a subsequent visit or a reward in kind for a certain number of visits. Either way it encourages the customer to come back so he/she can eventually earn the reward in cash or kind.
2. Loyal customers are less likely to defect: A loyalty program encourages patronage and creates a soft spot for the merchant in customer’s mind. As a result a loyal customer does not get easily swayed by competing offers.
3. Loyalty program generates more repeat business and profitability: A loyalty program ensures that the same customer visits multiple times resulting in higher net revenue per customer. It is also known that the average order value of a repeat customer is higher which results in higher margins and higher profitability for the merchant.
To conclude a merchant needs both new customers and repeat customers in order to grow and be profitable. While discounts need to be given in order to attract new customers, the focus of the business should tilt more towards retention and profitability. Hence a carefully planned customer loyalty program scores over discounting.