The traditional playbook in eCommerce has involved promotions and discounts as a driver of customer acquisition and retention. But the perception of this has changed, it is now seen as a shortcut for growth that damages profitability and genuine retention. Instead, we are now seeing retailers shift towards long-term profitability and fostering customer loyalty.
1. The Decline of Discount Dependency
For years, promotions and discounts were the go-to tools for attracting customers and driving sales. However, this approach often led to a race to the bottom, with margins squeezed and brand perceptions cheapened. Companies found themselves trapped in a cycle of perpetual discounting, sacrificing profitability for short-term gains. Customers, conditioned to expect discounts, would often prioritise price over other factors, meaning they were less loyal and more likely to easily shop with another brand.
2. The Rise of Profitability and Customer Loyalty
Recognizing the limitations of the discount-driven model, forward-thinking Ccommerce companies have started to embrace a more holistic approach centred around profitability and customer loyalty. This means moving away from short-sighted sales tactics towards strategies that prioritise sustainable growth and long-term value creation. At the heart of this lies an emphasis on product quality, customer experience, and brand authenticity. By delivering superior products and personalised experiences, eCommerce brands can differentiate themselves in a crowded market, fostering deeper connections with their audience and engendering loyalty beyond mere transactions. This also means focusing on marketing campaigns that drive long-term profitable growth. UK retailer Next has been laser-focused on profitability and has been adjusting its advertising spend in line with the return on investment (ROI), with Next’s CEO Lord Simon Wolfson stating that the business aims to make a minimum £1.50 for every £1 spent on marketing. This strategy seems to have paid off, with the retailer due to hit a profit of nearly £1 billion this year.
3. Building Customer Loyalty Through Value
Central to the new era of eCommerce is the notion of value creation. Rather than competing solely on price, successful eCommerce brands are striving to deliver value in a more holistic sense – be it through product quality, convenience, or personalised service. By aligning with customers’ needs and aspirations, companies can cultivate a sense of trust and loyalty. This can be seen especially during seasonal moments such as Black Friday, with more brands such as Adanola and Aligne choosing to opt out of offering Black Friday discounts. Whilst this wasn’t an approach that ASOS followed, the business has announced a £30m investment in brand building to help it return to growth, with a more full-funnel marketing approach and less reliance on blanket promotions, which is initially showing signs of paying off for the online retailer.
4. Looking Ahead
By prioritising quality, value, and long-term relationships over short-term gains, eCommerce companies and retailers can position themselves for sustained success in an increasingly competitive landscape. It is a difficult cycle for a retailer to get out of, particularly for supermarkets during a recession when shoppers are more price-conscious. Almost a third of supermarket sales in the four weeks to 14 April were made under a promotion, with the money saved by shoppers through deals and discounts amounting to £1.3bn over the four weeks.
However, retailers who can stay firm and embrace a shift away from generic discounting and promotions, stand a better chance of driving sustainable growth and creating lasting value for both customers and shareholders.
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