Promotional pricing is dangerous, particularly when a company is dealing with regular customers with whom it already has an established and seemingly solid relationship.
We’re all very familiar with the situation where banks and mobile telephone companies, for example, offer customers who have defected to the competition attractive discounts and other incentives to return. The reaction is classic. Those customers who have left and are being offered incentives to return are most likely to respond “why is it you are only now offering me these attractive terms, when you have essentially been paying no attention to me for years?”
Customers who have been and have remained loyal are left asking the question, “why are these so-and-sos offering a better deal to customers who have already demonstrated their disloyalty than they are to still-loyal customers like me who have never even threatened to leave?”
I saw a variation on this recently when an all-inclusive Caribbean resort sent an e-mail to former guests offering a very attractive “returning guests” discount if they were to book a vacation in March. The problem is that the e-mail was sent to ALL former guests, including many who had already booked their March 2008 vacation at prices as much as 30% higher than the “returning guests” discount. When they asked to receive the discount as they were, after all, returning guests as well, the request was denied with the explanation that this was a special offer intended to fill rooms that had not yet been sold and is standard practice in the hospitality industry.
Those guests who had demonstrated their “loyalty” by booking early for 2008, many of whom had visited annually for several years, were left at the very least with a “bad taste” and at worst with outright anger at not being treated as well as customers who had not already demonstrated their intention to return. Guests who were visiting for the tenth or fifteenth time found themselves paying rates that were 30% higher than the couple next door who had only visited once before; a difference worth as much as $3000.
Such discounting is a blunt instrument approach to marketing, one that is driven by short-term exigencies, intended to deliver a spike in sales, and that does not take into consideration the potential negative effect on established relationships. The most likely effect is to offend precisely those customers who have been most loyal and therefore most valuable to the firm.
So, how does the resort fill rooms that have not been sold without offending their most loyal customers? A simple answer is to be much more careful in sending out the promotional offer, making sure it does not go to people who have already booked. But this does not address the perceived unfairness. But, is it unfair? Are those returning guests who booked in November for their March vacation entitled to the lower promotional price?
Is a Sears customer who buys a Tommy Hilfiger sweater at full price in October entitled to a refund when that same sweater goes on sale after Christmas? Are these situations comparable? If you were reservations manager at the resort, how would you handle this situation and explain to your most loyal customers why they won’t receive the discount?
Amen, Jim. As a customer, I’ve run into the situation too many times. I have been subscribing to Time magazine for 30 years, and I once tried to talk a telemarketer hounding me into renewing my subscription for three years into sending me the latest promotional merchandise Time was advertising on TV. No go. It was only available to new subscribers. As I wrote once in the Forum, my husband was offered a better rate and rewards to resume using a credit card than I had as a long-time holder of the same card.
But I’ll tell you, when customers can get around you, they will. When I worked in circulation for a major newspaper publisher, we offered a start-up bonus of three months’ free daily delivery. So we had a ton of customers who would take out subscriptions, cancel after the free months were up and wait long enough for the computers to have wiped out all records of them and the next three-months-free offer came around and subscribe all over again.
Your clothing mark-down analogy works for the merchant but not from the customer’s perspective. The person who bought a top new has been wearing it for a while—and it’s most likely out of style or season. That discounted hotel room is being occupied at the same time as the hotel room booked earlier, so it presumably has the same value.
I like how Amazon handles things. If you pre-buy a book or DVD and the price goes down later, Amazon automatically lowers your price, so you’re not penalized for having purchased early.
I think businesses need to look at who is most valuable to them and who can potentially be more valuable and make sure to, at least, make comparable offers to those people. Don’t tick them off for being loyal.
Gwynne Young, Managing Editor, CustomerThink
Jim
A great post. It really makes you think.
Some of the examples you describe are just poor marketing. Sending customers who have already booked a holiday a mail inviting them to, well, book a holiday, is just poor marketing. Period.
But what about the preferential treatment for new versus loyal customers? It sounds pretty poor, especially from the loyal customer’s perspective, but may simply be a sign of a lack of organisational integration, or of unintegrated product manager targets. Or there may be a greater return on spending scarce budgets on new customers than on existing customers, many of whom may not leave even if they irritated by not getting the best prices.
And what about revenue management in hotels? This is just sound resource urilisation, even if it occasionally irritates customers who didn’t get the absolutely best offer. Businesses are not charities. They are businesses. Customers are free to buy when they want at whatever price they can buy for. Book early and your room may be cheaper. Commit to many stays and your room may be cheaper too. Book at the last moment and you will probably pay more. But you don’t have to book. You are free to choose another hotel if you wish.
Life is complicated and business organisations are more complicated still. One should never accept poor marketing. Nor should one accept outright corporate greed. But it is easier to accept an occasional lack of joined-up thinking in organisations (just look at your own organisation and then tell me it really works, with an honest face!). It is also easy to accept businesses seeking to maximise the value from their resources. And the ebb and flow of prices in open, free markets is to be positively encouraged. As Churchill might have said, “Open, free markets are the worst kind of economy, except for all those others that have been tried!”.
Graham Hill
Independent CRM Consultant
Interim CRM Manager