Question

1.) Comment on the effectiveness of using deep discounting to attract new customers. What are the pros and cons, both in the short-term and long-term?

2.)Once the initial deep discounts have ended, how can Jet.com use other elements in its marketing program to attract and keep customers? Explain

Answer 1

Deep Discounting - Yes Deep Discounting gets you new customers, but is it really worth it ? Lets see , A Rice University study found that only 35.9% of Groupon customers spent beyond the deal value, and just 20% returned for another purchase at the full price compared with Groupon’s own claims that 91% return or plan to return. This is not only a considerable discrepancy, but also an indication that daily-deals attract mostly the price sensitive customer with no brand loyalty, and to an extent, the bargain addicts.
The Psychology Today's article, Can Bargain Hunting Be Addictive?, highlights how bargain hunting releases dopamine and the "feel-good effect", making it addictive to many consumers. Many merchants decide to ride the bargain wagon with the hope of attracting new customers and repeat buys, and justify the high cost of these deep discounts as marketing costs. But, Can your small business justify the high marketing cost of this channel with no return on investment? And most importantly, Are you attracting your ideal customer, the one that will be loyal to your brand?
At the other end of the spectrum, you are educating your customers to pay low prices for your products and services. The chances of them coming back to pay full prices are slim and if you were them, you would wait for the next deal in Groupon. These price sensitive customers are discount lovers, so they will continue to use Groupon to fish for the next deal. They will come back to Groupon, not you.

Pros

Quick Way to Drive Sales:
There is an obvious reason why businesses use discounts. They’re effective!
Customers like a good deal for their money and it is a quick way to get your sales up.

Attract New Customers:
A worthwhile discount can get some heads turned. Especially for customers who are in the process of deciding to buying your product.

Clear Out Old Stock:
Have sluggish products from last season? Be gone with them by offering selective discounts so you won’t have a hold up!

Building a Relationship with Loyal Customers:
Its nice to be treated with perks and benefits. As a customer, if I'm rewarded beyond having a good product or service, I am more likely to have a better impression and overall experience. People like being recognized for their efforts and that is all the more true with loyal customers.

Cons

Inviting the Wrong Attention:
Discounts can attract customers who are simply driven by a good bargain rather than appreciate what your business has to offer. It can also set a bad precedence for the future.

Shifting Focus on Price:
Like the point just mentioned, your tactic could convert the emphasis on price, leading you down a cutthroat journey at achieving the cheapest prices. What's worse is this may not only apply to new customers but also existing ones.

Lowered Perceived Value:
We tend to feel uncomfortable when something seems too good to be true. With enormous discounts, we’re suspicious that quality may have suffered or that it wasn’t worth the price to begin with.

Cut in Profit:
Just as the headline suggests, the most obvious disadvantage is the cut in what you could have been making.