It has long been known in the business world that it is cheaper and easier to retain a customer than attract a new one – this proves the point.
It is estimated that, in their first year, businesses will see 50% of their revenue come from repeat custom – but how do they do it? While the trend at the moment seems to be for heavy discounts to your best customers, this is not a way that will prove effective in the long-term.
Why shouldn’t you give heavy discounts?
On the face of it, this seems a logical step. If repeat custom is the driver for continued business growth, courting your best customers with discounts makes sense. Except it doesn’t.
In fact, giving all your best customers heavy discounts will have the opposite effect. The key point here is not all the customers who return are worth targeting in this way. You need to first set a strategy for any discounts that you may offer and segment your customer base to make sure you’re only offering discounts to the right people.
The issue with giving all your repeat customers the heaviest discount is that it will attract too many that spend small amounts and in a lower frequency range. This group of customers will actually see your margins slashed and revenue fall over the long term.
What should you do then?
There is no doubt that very specific, targeted discounting can be an effective strategy. The key is to identify your ideal customer to aim it at and only allow them to access it. Even then, you need to remember not to make the discount too big, as this could affect your bottom line. Segment your audience from analytical data you have to see who spends the most on average and buys the most. These are the people who you want to reward with a small discount and court for future repeat business.
Discounts are not the answer to everything
By now it should be obvious that heavy discounting is not the answer to boosting sales or sustaining long-term growth. The only way to do this is with new merchandise that people want to buy! This will keep them coming back for more and see your revenue continue on an upward trend.