The Small Business Who Cried “Sale”!

It’s Saturday, which means Juke Sports is having its weekly 20% off sale. The owner, Jackson, has been holding these Saturday promotional sales for a little over six months now. Since the beginning, he has seen an increase in his sales numbers, just as he had hoped. However, he has noticed that his customer loyalty has begun to plummet. In fact, the type of customer that has come in has changed too, most are only purchasing products that are included in the weekly promotions.

 

 

Thrilled with the short-term success, Jackson didn’t think much of it. Soon the sales became less and less successful, until they really weren’t making a difference anymore. Jackson decided it was time to go back to his original strategy, which rarely offered sales and focused more on product quality than price cutting. To his surprise, the his product sales kept falling despite the fact that he no longer held his Saturday promotions.

 

 

The Problem Is With The Sales Promotions!

Jackson didn’t understand why his old strategy no longer worked. The truth is, Jackson had become the small business that yelled “sale!” Much like the little boy who cried wolf, he had actually trained his customers to wait for the next big sale. Now that he was no longer having those promotional sales, the customers were no longer coming to his store. Not only that, but he had run many of his loyal customers away due to their perception of his promotional sales being desperate.

 

 

Jackson’s not the only one who has seen the devastating effect of too many promotions on sales results. In fact, JC Penney’s changed their promotional sales driven strategy for more quality based back in 2012, with plans to aim toward a more “boutique-style” stores. This eliminated all of their daily “everyday low prices” promotional sales that made them famous. This drastically decreased JC Penney’s profits, as well as stock holdings. The chart below shows JC Penney’s stock performance over the last 5 years, where it last peaked in early 2012 prior to it’s promotional strategy change.

 

 

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Why Are Promotional Sales Killing Loyalty?

 

 

Stores like Juke Sports and JC Penney’s who rely on consistent sales to drive customers to their store are attracting the wrong customers. Ideally, every company is aiming to attract loyal, relational customers who will continue to purchase from them over time. However, these promotional sales driven strategy actually does the opposite. They attract transactional customers, also known as price chasers, who are looking for the cheapest prices not the highest quality!

 

 

As the United States’ economy begins to rise yet again, so does the hope of small business owners looking to grow. However, statistics are showing that many of them are turning to promotional sales to attempt to increase their profits and customer loyalty. The chart below shows the annual growth of sales promotion spending in North America over the last 5 years, as well as the annual growth of advertising and sponsorship as well. 

 

 

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While these promotional events may increase short term sales, they can ruin a company’s long term performance. Promotional sales can be a huge advantage for brand exposure, every now and then. However, studies are showing that business have begun to rely on these sales on a regular basis. This strategy isn’t conducive to business growth or developing customer loyalty. In fact, 44% of Millennials say they are loyal to brands they buy, and 52% will choose quality over price (IRI). This shows that we are no where near the end of this purchasing trend.

 

 

While promotional sales may seem like a good idea, we recommend keeping them to a minimum, especially if your business values the benefit of loyal customers. We also recommend that our clients aim to attract relational customers, who continually purchase from a company over time. The best way to maintain these customers is by creating a relationship through both experience and marketing. For more information on attracting relational versus transactional customers, please feel free to contact us.