Impact of Price Discounts on Customer Loyalty among Working Employees (in Retail Stores): [Essay Example], 766 words GradesFixer

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Impact of Price Discounts on Customer Loyalty among Working Employees (in Retail Stores)

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The paper focuses on finding the impact of price discounts on loyalty among the customers in retail showrooms. The research will be conducted among people who are working. The two key factors analyzed here are price discounts and customer loyalty. Customer Loyalty in the study states how a retail store is able to maintain a long term relationship with the customers, irrespective of similar products available in the market, by offering strategized price discounts.

Literature Review

Allender & Richards (2012), stated that promotion strategies have two key decisions;- the depth and frequency of discounts with which the product is promoted. The two critical factors on which these decisions depend are how many consumers can be convinced to switch to a brand by reducing its price and how many stick to the same brand. The econometric model used had two different product categories and was estimated in three stages. The first stage consisted of specification yielding estimates of brand loyalty, in the second stage the market demand model was used to estimate the wholesale price each retailer observed for each brand and the third stage was used to define the depth and frequency of the wholesale price. The results stated that the retailers should promote weaker brands more aggressively than strong brands when designing price promotions. Shallow trades of weaker brands should not be done as it will not overcome the loyalty of the strong brand consumer and make promotion profitable. Instead of using an EDLP strategy the retailers should use a HI-LO pricing strategy.

Cai, Deilami &Train (1998), developed a model to forecast customer retention for competition for various scenarios. The procedure predicted the share of customers who would switch to a competitor under alternative offers and who would remain with the electric utility. When competitors offered price discounts the models indicated significant risk to the utility of market erosion. The results indicate that to stay competitive a utility must maintain low cost. Customer erosion can be considerably mitigated if the utility can successfully maintain its advantages over competitors. Many people from the industry believe that consumers are highly responsive to small discounts. Customers will not pay for renewable power is believed

by many people from the industry but the results of the study indicate that to assure that energy is provided by the renewables people are willing to pay some extra money.

Grewal, Krishnan, Baker & Borin (1998), developed a conceptual model which determines the consumers’ evaluations and purchase intentions based on various factors. The results indicate that price discounts, brand name and abrands perceived quality influence the internal reference price. Purchase intentions were positively influenced by perceived value and store image. The study also showed that 41% of the variance in purchase intentions were caused by direct and indirect effects of Brand name, Store name and Price Discounts. Whereas 85% of the variation in the perceived value was caused by brand name and price discounts. Hence, retailers must pay attention to selecting merchandise and forming price discount strategies. These factors play an important role in shaping consumers’ perception of value.

Smith & Wright (2004), conducted a study in two directions by explaining the determinants of customer loyalty and its impact on financial performance. Product value can impact the level of customer loyalty as well as the selling prices. It can be said that customer loyalty can be a non-financial indicator for the firm’s overall performance. Factors such as high quality post sale services can improve customer loyalty which in turn can improve its financial performance. The study shows that customer loyalty acts as a mediator between product value attributes and financial performance. Thus we can say that customer loyalty is positively and significantly related to changes in prices and sales growth but its impact on return on assets is not significant.

Olivares, Wittkowski, Aspara, Falk & Matilla (2018), the study states that firms utilize discounts to build long-term relationships with customers and also generate temporary sales boosts for individual services and products. The process of building true voluntary customer loyalty involves relational discount strategy. They also studied the psychological mechanism to place the initial level of discounts. The study also states that a company can employ relational price discount strategy profitably which means that they can give discounts to customers initially to attract them as well as to retain them after the expiry of discount .Relational discounts of moderate size (15%-20%) is said to yield better customer retention. The study from a managerial perspective also states that long term customer relationships can be established and retained when initial price discounts are implemented cautiously.

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