The most popular feature in the last issue of Let’s Grow involved some surprising research from MIT on the long-term effects of how out-of-stock issues are handled. The same MIT group did some fascinating research on the long-term effects of discounting.
The study compared the short and long term effects of offering shallow and deep discounts to both existing and new customers.
In the short term, deep discounts were a hands down winner, boosting response rates 58% above the shallow discounts. Performance was the same for established and new customers.
The surprises came two years later. Response rates among existing customers who had received the deeply discounted offer were 12% below the norm. The temporary deep discounts damaged the company’s credibility and hurt sales in the long run.
The opposite was true for the new customers. Two years down the road, their average response rate was 22% above the norm. The deep introductory discounts made it easy for new customers to sample the product line and become loyal customers, even without discounts.
The moral of the story? There are two:
1) Never assume that the short-term impact and the long-term impact of a marketing decision will be the same.
2) To maximize profits, don’t treat all segments of your house file alike.