“’Like’ me and I’ll give you 50% off a new pair of jeans!” We see this marketing tactic with increasing frequency. It’s tremendously popular. But does it work?
A study conducted at Georgia State University set out to answer exactly that question. Were social coupons any good at attracting customers and boosting profitability?
Social Marketing Strategy: What They Discovered
In a review of three such campaigns conducted by real (but anonymous) small businesses, here is what they found.
The Ethnic Restaurant – The restaurant offers 50% off a meal and attracts 250 extra customers. The important thing to realize is that most of the people who use the coupon are already existing customers, so the coupon initially results in a loss. To make up for this loss, the restaurant has to keep the new customers long enough to earn a profit off of them. Unfortunately, the new customer base dwindles by 30 percent each month, and the restaurant never earns a profit off of the campaign.
The Car Wash – The company’s situation looked similar in the first month, losing 30% of the new customers. However, they managed to retain the other 70%, apparently indefinitely. They managed to turn a (projected) profit, but it would take 16 months.
The Beauty Salon – This company lost 30% of its new customers three months in a row, but managed to hang on to the rest of them. If the company can continue to retain those customers, they can expect to finally turn a profit after waiting a staggering 99 months. That’s over 8 years. Ten campaigns like that and they probably wouldn’t manage to turn a profit within a lifetime.
Most surprisingly, all three businesses expected the coupons to act as loss leaders, but they did not. Most of customers used the coupon for its stated purpose only, and weren’t enticed by any of the other services offered.
While these are B2C examples, we can see this same mindset at play in B2B business as well.
- An enterprise software company running monthly “specials” to boost sales, only to devalue the brand.
- The consultant who lowers her price when she meets resistance closing a sale – resistance that may have nothing to do with price.
- Using bait and switch tactics, promising a high degree of service, but supporting the customer with the least experienced personnel.
Customer Retention
The results of the studies are clear. This is a customer retention game. If you can’t keep the new customers, you can expect to face a loss. If you can’t keep very many of them, in can take a very long time to see a projected profit. Your customers may “like” you on Facebook, but that doesn’t mean they like you that way.
A social strategy without customer relationship management is no strategy at all. Unless you are offering your new customers a reason to stay, they wont. Furthermore, the type of customer who goes coupon hunting can be fickle. If somebody else offers a better price, you can expect them to leave.
The message is clear. If all you offer is a deal, you’re stuck in a perpetual race to the bottom, a race that you don’t want to win.
How are you retaining your customers?