Chasing new customers can be counterproductive

There are a lot of retailers wallowing in self-pity as consumers continue to go slow on retail spending. However, those retailers are likely to be victims of their own making, rather than casualties of new competitors, including online vendors, and consumers keeping their wallets closed.

The macroeconomic environment continues to be challenging with consumers directing tax cuts and interest rate savings to stem rising household debt levels and higher charges for services.

While the deep discounts of Black Friday sales enticed consumers to stores, sales in the first week of December were below expectations and the Australian Bureau of Statistics hardly added any cheer, reporting that October retail sales had flatlined.

It is little wonder that many shoppers are increasingly buying online or frequenting some of the new international retail brands if they are inclined to spend at all.

Too many retailers have betrayed the loyalty of their customers or have strained the relationship through their actions.

There are few things that annoy customers as much as special introductory offers, discounts and gifts designed to lure new customers when those benefits are not available to them.

It is a practice that is a lot like pouring water into the top of bucket that has a hole at the bottom and the fact is, it costs less to retain a customer than to win a new one.

When retailing is so challenging currently, one would think that retailers would want to keep every customer they can and to reward loyalty.

Many retailers certainly spend a lot of money on customer relationship management (CRM) programs that include discount loyalty cards, but that investment is itself discounted if new entrants to the program obtain higher benefits than existing customers.

CRM programs can also be a dealbreaker with customers if they become intrusive and annoying.

I actually think I am being stalked by Jack London. I have never shopped at Jack London which sends me virtually daily emails with discount and price off sales. I note that retailers are being encouraged to use text messages to customers, but I think that could be problematic with a pushback on privacy unless the customer specifically requests alerts.

Contacting customers through emails and texts does not ensure loyalty or necessarily build or strengthen a relationship.

The critical factor in a customer relationship is not how often you contact them or which media you use but the message. Too many retailers focus on what they want to say rather than what the customer wants to hear or know if loyalty is the objective.

Scandals and the trust factor

The other important element of developing and securing customer loyalty is trust and some retailers are certainly risking the trust of customers.

Coles supermarkets failure to pass on the full 10 cents price increase to farmers impacted by drought that was promoted could test the loyalty of some customers.

The supermarket has suffered reputational damage and political censure for not passing on the full price rise on milk that customers understood was the retailer’s commitment.

That decision may not immediately dissuade customers from shopping in Coles supermarkets but it undermines trust and credibility, making loyalty less of a consideration.

Similarly, revelations of underpayment of employees and food safety concerns by the Grill’d hamburger chain is likely to have adverse consequences for customer loyalty.

It is inexplicable how chains and franchise systems are still being found to be underpaying staff when there has been such extensive media coverage, a parliamentary inquiry and legal proceedings.

The damage for chains like Grill’d impacts recruitment and retention of good and motivated staff which, in turn, impacts directly on customer service and loyalty, not to mention the customer reaction to retailers not meeting their obligations as employers.

Customer loyalty is a fragile commodity but is a crucial factor in generating sales and protecting market share and there is usually no one else to blame if it is compromised.

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