Giving discounts to your best repeat customers

A Repeat Customer Insights customer was asking about using loyalty discounts and how that could impact customer behavior.

Loyalty is mainly measured by the Frequency score in RFM with the Recency showing a bit of influence too. It makes sense, the more times a customer orders then more likely they are loyal. And the more recently they've reordered, the higher quality customer they are.

In the app that combination shows up in the Recency-Frequency (RF) Grid.

Repeat Customer Insights Customer Grid

Discounting would give customers the incentive to buy again and buy sooner (discount deadline). This could increase their Recency and Frequency scores and move them up and to the right on the grid.

Normally that's a good thing if everything else is the same but it's not. By giving a discount you are likely losing revenue on customers who would have ordered anyways.

Good strategy, potentially the wrong tactic.

It can be better to reframe the discount as a bonus instead. e.g. "6th order" rewards, special product access for VIPs, and exclusive events could accomplish the same things without depressing gross revenue.

But the best option is to try both tactics and see how the metrics improve. Ideal ones to watch would be the Latency (want it lower), Repeat Purchase Rate (higher), and Average Order Value (stable or higher).

Eric Davis

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Topics: Customer analysis Discount

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