How Companies Keep Customers When Discounts Stop Working
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By
Arthur Kellan
- Business
- # business trends, strategies
- 5 min read
- Business
- # business trends, strategies
- 5 min read
Price compromises bring companies short-term results in attracting and retaining customers, but they also eventually destroy profitability. Indeed, when the market is oversaturated with promotions and discounts, this approach gradually turns customers into promotional nomads. Below, we’ll explain how to avoid this through a strategy for customer retention without discounts.
Why Discounts Stop Working
The aggressive dumping we see everywhere has given rise to a phenomenon known as discount fatigue, where sales alter consumer behavior and force them to deliberately wait for the next promotional campaign instead of making purchases when they need them. As a result, the conventional sales process undergoes significant changes. According to research by McKinsey & Company [1], companies experience peaks in purchasing activity only during periods of artificially reduced prices.
This logically leads to the conclusion that discounting leads to an inexorable rise in customer expectations while simultaneously reducing margins. Perceptions of pricing deteriorate, meaning that once a brand accustoms its audience to discounts, attempts to return to its original pricing policies are perceived by them as an unjustified cost increase, and they ultimately defect to competitors.
What Keeps Customers When Price Is Not the Hook
An effective customer retention strategy is based on creating high switching costs, which aren’t measured by savings – instead, convenience and reliability are crucial. Therefore, to achieve value-based retention, a brand must provide:
Better onboarding. This ensures long-term LTV – the faster a customer understands how the product solves their problem, the lower the risk of early churn. In particular, the SaaS platform Asana uses gamified onboarding instead of standard instructions, literally leading each new user by the hand. This reduces cognitive load, guaranteeing high engagement from the very first minutes of interaction.
Clearer product value. Companies must regularly demonstrate measurable results from using their products, which is especially important in the subscription niche, where customers constantly rethink the feasibility of subsequent payments. For example, Spotify has perfected this practice with its Spotify Wrapped campaign, featuring personalized stories about each user’s music year, including how many minutes they spent on the platform, what genres they discovered, who they became fans of, and more.
Service quality. Product stability, as well as a high-quality customer experience, creates a habit of returning to the same brand again and again. Amazon follows this practice, retaining millions of Amazon Prime subscribers through unprecedentedly fast delivery and a stress-free shopping experience. As a result, the platform’s customers have little incentive to seek out alternative marketplaces, even if they offer lower prices on certain items.
Personalized communication. Modern communication rejects aggressive spam. This is where personalized recommendations based on real interaction history come into play, as the personal style service Stitch Fix has actively adopted. Instead of impersonal “Buy at a discount” emails, each customer receives a customized selection based on previously purchased items. This is perceived as the care of a personal stylist, which stimulates repeat purchase behavior.
How Loyalty Programs Need to Change
Conventional loyalty programs based on points are no longer as effective at retention as they once were. Today, a customer loyalty strategy must include providing each individual customer with real value and an exclusive experience unavailable elsewhere. This means practicality and emotion are prioritized over the quick dopamine rush of discounts. This explains why new-generation programs must meet the following three criteria:
Real value instead of points. Instead of price reductions, it makes sense to offer additional free services or something else that can significantly enhance the brand experience. For example, Sephora’s Beauty Insider program offers its customers a new emotional experience: top-tier members receive free access to master classes from world-renowned makeup artists, personalized skincare sessions, the opportunity to test new brand products before their official release, and more, ultimately creating a sense of belonging to a private club.
Rewards for behavior (not just for orders). Incentives for activity, such as writing informative reviews or regularly renewing a subscription, should be rewarded with privileges. Nike does this through the Nike Run Club app, rewarding customers for their actual physical activity and providing access to its limited-edition collections or fitness playlists, thereby becoming a full-fledged partner in a healthy lifestyle.
Simplicity of rules. Overly complex points-based reward schemes can irritate users, so it’s much better to make the rules easy to understand in about 10 seconds. Starbucks, for example, with its Starbucks Rewards program, has made the mechanics as simple as possible. Now it looks like this: “$1 spent gives you 2 stars”. For 25 stars, a customer can receive a free syrup, and for 150 stars, any drink. This means customers don’t have to manually calculate percentages or convert points in multiple steps.
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Old Loyalty
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Useful Loyalty
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Points
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Faster service
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Coupons
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Better support
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Complicated tiers
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Clear value
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The Role of Trust and Consistency
In the realities of pricing pressure, a brand’s predictability determines the effectiveness of its retention strategy. Customers are most loyal to brands whose service level remains consistently high, despite price attacks from competitors.
More precisely, customer support quality plays the main role in this – that is, a quick and empathetic resolution of the user’s problem (instead of trying to buy them off with discounts). Actually, this is what can turn a dissatisfied customer into a full-fledged brand ambassador.
Conclusion
Building retention through discounts is a way of masking product shortcomings and ultimately deprives the brand of development resources. Conversely, shifting to a value-based model requires more effort initially, but creates a sustainable business model. That is, if you focus on improving the customer experience and creating customized benefits, you’ll obtain long-term loyalty that no competitor can match with a lower price tag.
Sources:
Arthur Kellan
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