How Promotional Pricing Can Get You in Trouble With Your Most Loyal Customers

Promotional pricing is dangerous, particularly when a company is dealing with regular customers with whom it already has an established and seemingly solid relationship.

We’re all very familiar with the situation where banks and mobile telephone companies, for example, offer customers who have defected to the competition attractive discounts and other incentives to return. The reaction is classic. Those customers who have left and are being offered incentives to return are most likely to respond “why is it you are only now offering me these attractive terms, when you have essentially been paying no attention to me for years?”

Customers who have been and have remained loyal are left asking the question, “why are these so-and-sos offering a better deal to customers who have already demonstrated their disloyalty than they are to still-loyal customers like me who have never even threatened to leave?"

I saw a variation on this recently when an all-inclusive Caribbean resort sent an e-mail to former guests offering a very attractive “returning guests” discount if they were to book a vacation in March. The problem is that the e-mail was sent to ALL former guests, including many who had already booked their March 2008 vacation at prices as much as 30% higher than the “returning guests” discount. When they asked to receive the discount as they were, after all, returning guests as well, the request was denied with the explanation that this was a special offer intended to fill rooms that had not yet been sold and is standard practice in the hospitality industry.

Those guests who had demonstrated their “loyalty” by booking early for 2008, many of whom had visited annually for several years, were left at the very least with a “bad taste” and at worst with outright anger at not being treated as well as customers who had not already demonstrated their intention to return. Guests who were visiting for the tenth or fifteenth time found themselves paying rates that were 30% higher than the couple next door who had only visited once before; a difference worth as much as $3000.

Such discounting is a blunt instrument approach to marketing, one that is driven by short-term exigencies, intended to deliver a spike in sales, and that does not take into consideration the potential negative effect on established relationships. The most likely effect is to offend precisely those customers who have been most loyal and therefore most valuable to the firm.

So, how does the resort fill rooms that have not been sold without offending their most loyal customers? A simple answer is to be much more careful in sending out the promotional offer, making sure it does not go to people who have already booked. But this does not address the perceived unfairness. But, is it unfair? Are those returning guests who booked in November for their March vacation entitled to the lower promotional price?

Is a Sears customer who buys a Tommy Hilfiger sweater at full price in October entitled to a refund when that same sweater goes on sale after Christmas? Are these situations comparable? If you were reservations manager at the resort, how would you handle this situation and explain to your most loyal customers why they won’t receive the discount?