Offering deep discounts can sometimes antagonize your most loyal customers, particularly if they already paid full price, according to a new paper by Eric T. Anderson, a professor of marketing at Northwestern University’s Kellogg School of Management, and Duncan I. Simester, a professor at MIT.
The paper, “Price Stickiness and Consumer Antagonism,” studied a retailer of durable goods that typically didn’t discount. The retailer mailed out two test catalogs—one with “deep discounts” of more than 60 percent, the other with “shallow discounts” of 34 percent.
The result: “negative spillover effects” on future orders. Customers who received the deep-discount catalog placed 14.8 percent fewer orders over the next 28 months than those who received the shallow-discount version. In addition, 34 percent of recipients of the deep-discount catalog and 27.1 percent of recipients of the shallow-discount catalog never placed another order again. “Merely sending these customers a catalog containing lower prices reduced purchases,” Anderson and Simester wrote, labeling this “the boycott effect.”
The study also looked at a clothing retailer that relied heavily on catalogs. Some 110,000 customers received a test catalog just days after Christmas, with an average discount of 45 percent. Orders dropped 4 percent after the mailing.
“Our study showed that the customers who are antagonized are not the worst customers—they’re the best customers,” Anderson told the Kellogg School website.
Anderson suggested that if retailers do discount, they should make the offers “private.”
“If you’re going to send the offer via email, don’t send the email to customers that just paid full price; send it to customers who haven’t bought that particular item,” he said.