In the space of a few short years, eCommerce has ushered in a Wild West-like atmosphere when it comes to attracting new customers. Online retailers have employed everything from rewards programs to dynamic pricing to siphon consumers away from their digital competitors, but is this kind of blanket approach to customer retention really the best strategy?
A group of professors from Dartmouth College and Italy’s University of Bologna think otherwise, and their most recent study published in the Marketing Science journal underscores why: In an examination into triggers for customer action via multichannel marketing pipelines, the tried-and-true incentive method of offering endless discounts and other incentives might not be as effective as previously thought.
Elisa Montaguti, associate professor of corporate finance at the University of Bologna and lead author of the study, explained in a statement how the study was structured as a real-life field experiment centered on a major European book retailer with established multichannel advertising practices. With more than 30,000 customers available for the study, Montaguti and her team separated the consumers into four groups. Over the space of a year, each group received marketing messages that touted multichannel shopping’s benefits or expressed the value of the retailer’s brand, with coupons both included and excluded for four different campaigns.
What did Montaguti find? Customers that received multichannel marketing information without any coupon incentives ended up shopping more often and spending more money throughout the study than their counterparts. In fact, this group was the only one in the study to yield a positive 93 percent return on investment for the retailer.
The average retailer might wonder why the addition of coupons could actually hinder sales, but Montaguti’s team interviewed customers to identify the negative effect. The multichannel shopping ads without coupons informed customers about their options without coming off as manipulative, but the addition of the financial incentives caused some customers to feel as if they were being pressured into a series of restrictions just to use the coupons.
“The coupon incentives were quite reasonable from the company’s perspective, but were restrictive and manipulative from the consumer’s perspective,” Montaguti said. “So the prescription for companies is simple – make clear what you’re encouraging the customer to do, but don’t come across as manipulating them into doing it.”
As if the evolving eCommerce ecosystem couldn’t throw more curveballs at retailers, this consumer reaction might only be common when companies are trying to drive interest through multichannel marketing to brick-and-mortar stores. According to a recent study from Johns Hopkins Carey Business School assistant professor Sanghee Lim, retailers might do well to repurpose financial incentives exclusively toward their online-only customers instead of in-store shoppers who are already loyal spenders.
“Offline stores may be giving away profits when they offer loyalty rewards to customers who will keep coming back anyway, regardless of any discount that’s offered,” Lim said in a statement. “Online shoppers, on the other hand, may use a coupon to revisit a retail website even when it’s not one of their preferred sellers.”
Fine-tuning marketing efforts will understandably differ for each retailer, but as customers become more familiar with the breadth of options available to them in a multichannel retail ecosystem, they may also become less forgiving of merchants that don’t communicate in the way they’re expecting.
In fact, it might be time for the whole retail industry to take a step back and think about what it really wants to accomplish with coupons and deals – and how merchants can make the best use of them. Otherwise, retailers might be turning their own customers against themselves without even knowing it.