Discounts can be a great way to boost sales in the short term, but they only work if the products or services behind them are actually good. 

There are plenty of businesses that leaned too heavily on discounts, only to struggle with long-term success because their quality didn’t measure up. This led to losing customer loyalty and a drop in how people viewed the brand. In this blog, we’ll look at a few businesses that offered lots of discounts but couldn’t keep customers coming back because their products weren’t up to par or they didn’t create lasting value.

1. Groupon: The Discounting Giant That Struggled with Quality Control

Background: Groupon, a popular online platform that comes up with lucrative discounted deals with a variety of products and services. They’ve become a household name, thanks to their steep discount offers to attract customers.

Their strategy was simple. Businesses would use Groupon and sell their products at a discounted price. In return, Groupon would take a commission.

• Groupon’s business model relied on attracting customers with daily deals offering discounts of up to 90%.
• Consumers flocked to the site looking for “the best deal,” and many businesses saw a spike in customers when they offered steep discounts on Groupon.

They did bring a massive success when it comes to initial traffic. However, Groupon failed to sustain in the long run. It’s because even though they had great discounted deals, they used to provide a very poor customer experience.

Quality was sacrificed for price:

A lot of businesses that joined Groupon deals tried to maintain high-quality standards. However, they couldn’t keep up with the rush of customers grabbing those discounted offers.  For example, in restaurants and spas, they had lot of overworked staff but the inventory was limited. This led to poor service and unsatisfied customers.

Customer Expectations

Consumers who grabbed the deals often felt let down when they received a poor product or service, especially knowing they paid just a small fraction of the original price. Because of this, businesses struggled to build a loyal customer base that would return without needing a discount.

No value beyond the deal

The business model of Groupon focused almost entirely on price. Not to mention, many businesses failed to build a lasting relationship with customers following this strategy. As a result, even though there were customers who were interested in the discount offer, they started to lose interested in the long run due to lack of value.

2. J.C. Penney:

J.C. Penney was once a popular department store in the U.S. It was known for offering massive discounts. One of its major discount scheme was through Clearance Sales and Markdowns. With the help of CEO Ron Johnson, the company shifted to value-driven strategy from its constant discount model, which didn’t last well.

J.C. Penney’s strategy of focusing on constant discounts eventually led to several issues that damaged the brand:

Discounts undermined brand perception

Customers began to take J.C. Penney’s products as cheap or low value products. They didn’t see it as a brand as a retailer that offered quality products at fair price. Rather, to customers, it became a place for ‘bargain basement’ shopping.

Failure to invest in quality and customer experience

J.C. Penney didn’t focus much on making improvements on the quality of its products or even the shopping experience. It didn’t think about investing in better merchandise or offering a unique value proposition. Rather, the company kept selling mediocre products at discounted prices.

Alienation of loyal customers

J.C Penney’s long time customers were used to getting regular discounts. But, at a time Ron Johnson introduced the Everyday Low Price strategy. Meaning, it wasn’t giving any discount. Instead of frequent sales or discounts, the store offered products at a lower price every day. This had loyal shoppers confused and upset. The brand ended up losing its core customer base.

3. Sears:

Sears was one of the largest retailers in the United States that offered clothing, appliances, tools and furniture. However, it ended up being bankrupt and relied heavily on frequent discounts and promotions from then on to drive sales. It didn’t turn out well.

The strategy of discounts initially worked. However, Sears faced a several key problems which made its long term growth a disaster.

• Declining Product Quality: Giants like Walmart and Target were the competitors of Sears. To keep up with the competition, Sears tried to sell products that had a reduced price tag. The next thing you know, they were selling low-quality products.  Customers were not satisfied with the durability and reliability of Sears’ products, especially when it comes to electronics and appliances.
• Inconsistent Shopping Experience:  It’s true that Sears got a lot of people coming at its door for discounts. But thanks to its low-quality shopping experience, the customers were struggling. Many of its stores were outdated as well. The in-door shopping experience was not meeting the mark of customer satisfaction. Sears couldn’t stand a chance when Home Depot or Macy came in.
• No Brand Differentiation: Despite the discounts, Sears couldn’t distinguish itself from competitors in terms of product quality, customer service, or unique offerings. Consumers simply didn’t see value in shopping at Sears when they could buy similar products elsewhere for the same price, or even less.

How Product Quality and Perceived Value Drive Repeat Customers More Than Discounts

The Power of Product Quality

When customers purchase a product that meets their expectations or exceeds it, they’re more likely to return, even though the price of that product has a hefty tag. Product quality creates customer satisfaction, and satisfied customers are the backbone of repeat business.

Key Benefits of Product Quality:

·         Customer Loyalty: High-quality products foster trust. When customers can rely on a product, they’ll purchase it again.

·         Word-of-Mouth: Happy customers will recommend the product to others. There will be no need for discounts.

·         Reduced Returns: High-quality products minimize complaints and returns. This leads to smoother operations and better profitability.

Example: Apple

Apple is a prime example of how product quality drives repeat business. The brand does not offer discounts much. Rather, they focus on delivering quality and innovative products. We should keep in mind that the products of Apple are pretty expensive. However, you would still see a lot of customers are purchasing these products even they have to go for installment plans.  It’s all because of the quality of the products and seamless user experience.

The Role of Perceived Value

Product quality is important; yes. However, perceived value is important as well. It’s about how much customers believe a product is worth spending money on. This is a key driver of repeat purchases. Perceived value includes not only the product’s quality but also its brand reputation, customer service, and overall experience.

Key Factors Influencing Perceived Value:

·         Brand Image: If the brand reputation of a business is great, it can enhance the perceived value. Customers will always feel they’re getting a premium product.

·         Customer Experience: Shopping experience matters. Customer service, delivery and ease of shopping are crucial factors to consider to gain perceived value.

·         Social Proof: Positive feedback and customer testimonials increase the trust of customers. They feel like what they’re buying are worth spending their money on.

Example: Nike

Nike always focused on creating high perceived value. 

Nike sells more than shoes.They sell status, identity, and a mindset.That’s high perceived value, no discount needed.

They’re not just selling shoes or apparel to customers. They’re selling a lifestyle. Thanks to its clever branding, celebrity endorsements along with quality products, Nike made its customers feel like they’re getting more than just a product. This value goes beyond discount offers and customers keep on coming for repeat purchases.

Amazon

Amazon has successfully mastered the art of perceived value. You won’t see this company offering a lot of discounts. Rather, it creates value through user experience, convenience, faster delivery and unbeatable selection.

Discounts Alone Aren’t Enough

We’ve seen so far that there were businesses that offered a lot of discounts, yet, they couldn’t survive the long run. On the other hand, there are businesses that were offering amazing products, perceived value and focused on shopping experiences. They are still making it big even though they’re not offering discounts to their customers.

For businesses to succeed in the long run, they need to focus on quality, create value beyond price, and adapt to change in markets.