Thursday, November 11, 2010

Set Moderately High Purchase Thresholds

What irritates your customers the most? When DailyFinance recently asked their readers, 350 people responded. At the top of the list of “Retailer’s 15 Most Annoying Habits” were complaints that retailers require shoppers to buy unneeded products in order to receive a discount. You must buy ten packages of pasta for the cut-rate price. Who wants to miss out on the discount? On the other hand, who wants ten packages when all you’ll be using for a while is one package?
     But what if your customer was planning to buy one package and you offer a great discount on the three-package purchase? The research evidence indicates this will encourage your shoppers to spend more money with you sooner than they would have otherwise.
     Consumers dislike a feeling that you’re forcing them to buy. In general, they don’t object at all to being tempted, coaxed, or even challenged by purchase thresholds. When setting purchase thresholds for discounts or loyalty programs, go for what is out of grasp for the shopper, but within reach. Set moderately high purchase thresholds that shoppers feel they can achieve and that they’ve earned.
     Researchers at University of Pennsylvania and University of Southern California explored what happens when a retailer introduces new award levels in a loyalty program. Up to now, there’s been a gold level at the top. Now we’re adding a platinum level above for which only some gold members will qualify because the purchase thresholds are higher. The researchers found that consumers actually prefer retailers that offer elite loyalty program tiers, even when those consumers know they’re unlikely to themselves qualify.
     It’s the same theme when it comes to thresholds for price discounts. Researchers at Bryant University and University of Illinois tracked the thoughts and emotions of customers who chose to come close to fulfilling the terms of an offer in the form “15% off all purchases when you spend at least $75.” These customers actually reported higher satisfaction levels than did those who received the discount. The customers who chose to spend toward the threshold, but hold back, generated thoughts of empowerment.
     Whatever the purchase thresholds, though, be clear and consistent about the terms. In second place on the DailyFinance list were complaints like, “The sign said ten packages for a discount price of $10, but you could actually buy one package for $1.”

Click below for more:
Give Loyalty Program Participants Prestige
Tailor Loyalty Programs to Customer Culture
Keep Discount Conditions Strict Enough

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