Does discounting increase customer loyalty?


Share on LinkedIn

In a recent Wall Street Journal article that highlighted the real-time price war being fought between traditional brick-and-mortar stores and their online competitors, an interesting comment was made by one of the big box giants.

Black Friday, with its deep discounts, isn’t good for profits. But chains that don’t participate risk losing shoppers’ attention at a time when a fifth or more of their sales can be on the line. Shawn Score, Best Buy’s newly appointed head of U.S. retail operations, said the point of all the discounting is to earn shoppers’ loyalty for future purposes.

I’m actually stunned by the last sentence. Does Best Buy’s newly appointed head of U.S. retail operations really believe that “the point of all the discounting is to earn shoppers’ loyalty for future purposes”? If so, I’d sure like to see some supporting evidence. My guess is that the relationship is just the opposite. As discounting increases, buyers become conditioned to focus solely on price at the expense of everything else.

Forget customer loyalty. Because of these Black Friday promotions, more and more customers shop at Best Buy solely because of price. When competitors match or exceed Best Buy’s price (which always happens in a price war) these customers are gone. And if they do come back to Best Buy for any future purchases, it’s will be driven by price, not loyalty. Like the article said, deep discounts aren’t good for profits. Best Buy has only themselves to blame by participating in these types of suicidal price wars. It reminds me, once again, of the old pricing joke. “You lose money on every sale…” – “Yeah, but we [Best Buy] make it up in volume.”

We’ve said it many times before…price wars are a fool’s game.

Republished with author's permission from original post.

Patrick Lefler
Patrick Lefler is the founder of The Spruance Group -- a management consultancy that helps growing companies grow faster by providing unique value at the product level: specifically product marketing, pricing, and innovation. He is a former Marine Corps officer; a graduate of both Annapolis and The Wharton School, and has over twenty years of industry expertise.


Please use comments to add value to the discussion. Maximum one link to an educational blog post or article. We will NOT PUBLISH brief comments like "good post," comments that mainly promote links, or comments with links to companies, products, or services.

Please enter your comment!
Please enter your name here