Lack of loyalty investment fuels mass discounting hell

Too many brands are still failing to implement personalised loyalty programmes when it comes to promotions, meaning they are stuck in a vicious and hellish circle of blanket discounting, poor data, and squeezed margins.

That is according to new research carried out by Harvard Business Review, sponsored by incentives platform Talon One, which quizzed 420 professionals working at companies with promotions strategies. It found that only 56% of those surveyed say their organisation currently runs personalised promotions or discounts, as opposed to mass discounting, for example.

There remains a stubborn cohort of almost one in four (22%) at businesses who have no plans to personalise promotions or discounts, while 17% plan to start doing so “soon”.

Yet, among those at organisations that do personalise discounts, nearly all (94%) say they are reaping rewards: 62% say they have seen increased sales as a result, while nearly half (47%) say it has increased customer loyalty, and 44% say it has delivered a better customer experience.

The report maintains these benefits could be multiplied when promotions and loyalty strategies are integrated – which in turn helps brands to unlock personalisation.

Respondents at businesses that have already partially or completely integrated their promotions and loyalty strategies report improved customer loyalty (60%), increased sales revenue (58%), better customer experience (56%), improved data capture opportunities (41%), and increased ROI of marketing efforts (40%).

This comes as brands focus increasingly on profitability amid a challenging economic environment. In the next 12 months, 65% are planning to increase their focus on the profitability of promotions and discounting, and 66% are planning to increase their focus on profitability of customer loyalty programmes (among those who currently have a loyalty scheme).

Despite clear evidence that a personalised loyalty programme drives value for businesses and for customers, many businesses are yet to recognise this.

When respondents at organisations that do not currently offer personalied promotions were asked what prevents them from doing so, a quarter 25% cited unclear business value/return on investment and 28% said other business initiatives take priority.

Talon One chief executive Christoph Gerber commented: “This data highlights what we call the ‘Personalisation Paradox’. Until businesses invest in personalising promotions and can see the ROI directly, they won’t grasp the business benefits and will be reluctant to push it up the list of strategic priorities.

“This means that today, too many brands still rely purely on blanket discounting – which eats into their margins and holds them back from improving customer engagement and loyalty.

“But, if mass discounting offers a vicious circle, integrated and personalised incentive programmes represent a virtuous one – with more data, personalisation, and added value for businesses and their customers, growing both margins and loyalty as a result. Unlocking this virtuous circle might require resource and tech investment, but it’s important that brands hold their nerve and make smart strategic changes that will give them competitive advantage.”

Deloitte Consulting LLP principal Oliver Page, who contributed to the report, added: “One of the most critical mistakes we see is that loyalty programmes are not in line with the overall company strategy. We see businesses setting these big organisational goals in terms of how they want to drive revenue, or which segments they want to target, and then you look at their loyalty scheme and the personalisation elements within it, and they aren’t tied to those goals. It seems obvious, but we see this strategic disconnect all the time.”