Sweat the small stuff

Research & Resources

The Problem with Discounting

I recently received an email from a fitness studio promising an “offer I couldn’t refuse.” The offer was a discounted six-month membership, and it happened to be the sixth sale email I had received from this studio within a matter of weeks. When did I last visit? Over a year and a half ago, on ClassPass. The disconnect between where I am as a customer and consumer, and what the studio is offering to compel me to return, couldn’t be more apparent. This disconnect arises when businesses focus on selling a product, rather than cultivating a customer.

Discounts are not inherently negative, depending on how they are implemented. Everyone loves a sale and appreciates the feeling of making a purchase at a bargain price. However, frequent, untargeted discounting has rapidly spread across industries in the last decade, becoming so widespread that it is now detrimental to the relationship between businesses and consumers. Customers are used to having their inboxes flooded with sales offers, and as a result, they begin to see “full price” as an overstatement of a product’s actual worth.

I was recently reading a whitepaper on discounting written by the KPMG / Ipsos Retail Think Tank. Within the whitepaper, David McCorquodale, the Head of Retail at KPMG, summarized the issue with discounting well.

“Constant discounting tells consumers the products aren’t worth the regular price and the sale price becomes the true price. And because most retailers have followed the same hard discounting strategy, we are in a race to the bottom.”

The proliferation of blanket discounts affects fitness just as much as it affects retail. Customers receive so many emails from fitness studios on a daily basis that the opportunity for deals is unavoidable. This leads customers to hesitate before purchasing a drop-in or package at full price, because they wonder if they are paying too much. The challenge is finding creative ways to make customers feel a sense of value on an ongoing basis, not just when they receive notice of a blanket discount. Fitness is meant to be a recurring activity that customers fit into their lifestyles in a consistent way- and time spent waiting for discounts is time that could have been spent developing a habit.

Once a habit is broken, or if it is never formed to begin with (as was the case for me, with the studio I mentioned above), it is significantly harder to reel that customer back in. He or she has formed a new habit somewhere else, whether that is attending a different studio, or running outside, or sitting on the couch. I often see “We Miss You” emails that offer a steep discount, or a completely free class, to customers who haven’t attended the studio in a few months. Customers may redeem the free class because it is such an appealing discount, but they aren’t necessarily motivated to change their intentions or behavior longer term.

Studios can begin to take on this challenge by shifting their focus from selling a product to cultivating a customer. Martin Hayward, another contributor to the Retail Think Tank’s discounting whitepaper, noted that “we are in a world of Customer Transaction Management rather than Customer Relationship Management.” The fitness industry can move towards a world of “Customer Relationship Management” by asking questions like “how I can increase this customer’s lifetime value,” rather than “how many packages can I sell this month.”

In order to move towards a customer-centric model, you must accomplish two things:

1. Restore your customers’ trust in pricing

2. Tailor your communications and offers to be more relevant to each individual.

If we change our mindset to consciously put the customer at the heart of every transaction and communication, we can actually shift attention away from the price per spot and towards the quality of the experience. To make this change, we have to use individual customer data to make decisions in real-time, rather than only looking at data retroactively to identify trends.

At Dibs, we use a dynamic pricing model that gives us the most flexibility to have an adaptive price structure and engage with customers on a personal level. By working with us to base your pricing and incentives on data, you can do the following:

· Tailor rewards to individual customers, based on the behavior they are exhibiting and where they are in their lifecycle at a studio.

· Incentivize behaviors that are in line with what you hope to cultivate in your community, like encouraging early bookings by increasing the price as a class fills.

· Most importantly, provide customers with the opportunity to receive real value on each purchase while still optimizing the revenue of each class.

The transaction feels good on both sides, building a stronger foundation for a long-term relationship between the customer and business.

If you are interested in reading more, check out these sources on discounting:

“Is Discounting a Current Necessity or Is It Simply a Race to the Bottom?”, KPMG/IPSOS Retail Think Tank

“Holiday Discounts are a Dangerous Drug”, Harvard Business Review