Marketing and sales professionals have long believed that loyal customers are willing to pay a bit more for goods and services because of attachment to a particular business. But new research reveals that customers actually expect a discount for their loyalty.
Researchers at Ruhr-Universität Bochum (RUB) in Germany found that customers who consider themselves loyal to a particular company or brand often play up their loyalty to achieve a discount.
“Many customers consciously play out their loyalty in price negotiations, and thus gain an extra five percent discount without any problem,” said Professor Jan Wieseke.
The researchers discovered this by evaluating data from 6,000 customers and observing 300 negotiations between businesses and customers in various sectors. They discovered that businesses — whether selling furniture, vehicles, clothing or home repair supplies — were most often willing to provide customers they recognized as loyal with reasonable discounts. The customers, in return, came to expect the discounts in return for loyalty.
“This shows that loyalty can, indeed, be bought,” Wieseke said. “But it creates a vicious circle in which customer loyalty and discounts rise ever higher and higher. This puts many shops in a stranglehold.”
For companies, the research indicates that remaining competitive as technology gives customers more and more options means striking a delicate balance between rewarding customer loyalty and providing an excellent good or service at a price that doesn’t damage the bottom line.
For customers, it reveals incentive for ditching impersonal, large-scale companies that are often able to provide goods and services cheaper than locally owned businesses where, with a little loyalty, the customers can getter bigger discounts and often better service.