Discounts donít breed loyalty

15 October, 2010

I was contacted by Groupon this week, a company which claims to offer a new sort of advertising service. The deal is it will email people in a particular geographical locality (usually arranged by city), and on your behalf offer a massive discount on goods or services you offer. The upside of this service is that it usually manages to drive footfall through your door as people cash in their vouchers. The downside, predictably, is that this is a price-driven mechanic, which I donít believe works to build repeat trade.

Groupon typically asks you to offer a 60%-70% discount for anyone who buys into the promotion. It claims people generally spend beyond the value of their coupon (I canít bring myself to call it a ďgrouponĒ, as they do), and that by offering a powerful incentive to visit, it alerts people to your presence. My experience is that if you offer enough of a discount, people will travel any distance, but will rarely return.

Take the example of a clearout we had some time ago of short-dated stock. We had a large quantity of 75cl Leffe Brune to clear, and priced at two quid each, they flew out of the door. For a couple of weeks afterwards, we had many people visit asking after the discounted beer. When told it was all gone, they made a face, had a polite look around the shop and left. What this demonstrates to me is that price-cutting breeds price loyalty, and little else. People will just wait for the next cut-price sale to stock up.

Iíll be returning again soon to the debate of why price mechanics donít work and how they ruin the market for everyone. In the meantime, if we can agree price promotions donít work, then what are we left with? Itís just good old-fashioned brand building, Iím afraid.

Itís taken me a decade to build a brand people believe in. Part of that is based on how we run the business, and part on the business as an extension of my personality. Thereís no doubt that a little tinkering with e-media in the past year has helped the business (note: the term ďnew mediaĒ now really just means smartphone apps, and the web is now just boring old electronic media). Twitter and blogging have both proved powerful tools in running the business, and in the case of blogging, has actually helped us recruit our newest member of staff.

There is an argument that claims blogging is just a way to promote oneself and Twitter just a website full of text-message gibberish.

Thatís true, but to use this as a form of denigration misses the point. The drinks industry is full of massive personalities Ė just the sort of people who in simpler times would have been descibed as ďcharactersĒ Ė exactly what you would hope to build a brand upon.

Thatís why I was delighted to see fellow OLN columnist Tim Atkin start blogging this week with a report from El Bulli. I admire the speed of his Damascene conversion to the medium Ė just a few weeks ago in his column, he finally admitted that ďthis internet malarkey might have something in itĒ (Iím paraphrasing somewhat).

Blogging is the fulfilment of Andy Warholís prediction that ďin the future, everyone will be famous for 15 minutesĒ. Self-promotion, like any sort of promotion, only works if the product is worthy of a repeat purchase.

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