Posted on Friday, 16th July 2010 by Vanessa Miller
Has your business become hooked on specials, deals, and discounts over the course of the recession? During the past few years, most small businesses have resorted to drastic price cuts to keep customers and clients coming in. Businesses in industries that rely on discretionary income—including restaurants, retailers, and personal services such as hair salons—have been especially hard hit by customers’ obsession with deals.
A recent restaurant industry survey from business strategy firm AlixPartners blamed extreme discounting—which it dubs “the Subway Effect,” after the sandwich chain’s $5 sandwiches—for creating a huge gap between what customers expected to pay pre-recession and what they expect to pay now. The study found that while diners expect to eat out more often in 2010 than in 2009, they plan to spend less each time they go out—21 percent less than in pre-recession 2008, and 4 percent less than last year.
How can you begin weaning customers off their reliance on sale prices so that you can start making more money? One smart strategy is to focus on loyalty programs.
While loyalty programs still offer specials and discounts, they are focused on creating repeat customers. Putting coupons in the newspaper or advertising a sale with signs in your window can attract people, but they’re often one-time customers who are shopping solely on price and will go wherever they get the best deal. Loyalty programs, in contrast, reward only those customers who come back to your business again and again. While these customers still get deals, you make more money in the long run because loyal customers typically spend more, refer other customers to your business, and engage in other behavior that makes them more valuable than a one-time coupon-clipper.
Here are some ways to woo loyal customers without slashing your prices too low:
- Start an e-club – an e-mail list customers can join for exclusive deals, specials, and news on what’s happening in your business.
- Use social media tools like Facebook and Twitter to communicate with customers and send them regular updates, specials, and discounts.
- Hold special events for your loyal customers. For instance, a restaurant could offer a seasonal dinner that they advertise to those on the e-mail list; a boutique could hold an invitation-only sale after hours.
- Sign up for a location-based service like Foursquare or Gowalla. These services make it easy to offer loyalty rewards to customers, and are free for businesses to join.
- Create a points system where customers earn points for each dollar spent at your business. Let customers redeem points for discounts, gift cards, or products.
- Offer a discount or free product or service when customers reach a certain level of frequency—a free manicure after 5 paid manicures, or a free personal training session after three months of gym membership.
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