Can promotion personalization reverse ‘vicious circle’ of mass discounts?

Arguably, no corner of the marketing industry has been more eagerly awaiting this personalization revolution than promotions, discounting and loyalty departments. Promotions and offers have long suffered a reputation as a ‘necessary evil’ in a brand’s toolkit, a tap to be turned on occasionally, with one eye on wastage.

Back in 2021, analysis by the Boston Consulting Group put a number on the opportunity of shifting from this broad-brush-with-wastage approach: by shifting 25% of mass promotion spend to personalized offers, return-on-investment would increase 200%, for a global top-line growth opportunity of £70bn a year. It’s numbers like that that have led to headlines about personalized promotions as marketing’s ‘next frontier’ and ‘holy grail.’

But a new report from the Harvard Business Review and promotions technology shop Talon.One finds many brands still slow on the uptake of this promise.

From a survey of 420 organizations that run promotions strategies, almost half (44%) still run no personalized promotions or discounts. Within that number, 22% have no plans to implement personalization, outnumbering those who plan to introduce personalization soon (17%).

That’s despite a raft of good news from those who are personalizing their discounts, 94% of whom say they’re reaping rewards – 62% in the form of direct sales, 47% in increased customer loyalty and 44% in improved customer experience (CX).

The personalization paradox

When The Drum sits down with Talon.One’s chief exec, Christoph Gerber, to discuss the state of personalization in the loyalty and promotions landscape, he acknowledges that the “vicious cycle” of mass discounting continues to loom large over the discipline, impinging progress towards an altogether “virtuous cycle”, underpinned by personalization, in which loyalty and promotions come together as a central pillar of brand strategy that both draws from and contributes to an organization’s data, CX, sales and loyalty efforts.

Getting there, Gerber says, can be a little paradoxical. “Until businesses invest in personalizing promotions and can see the ROI directly, they won’t grasp the business benefits,” he says. “This means many brands still rely purely on blanket discounting, which eats into margins and holds them back from improving customer engagement and loyalty.”

Thus, what appears to be a technological problem quickly crumbles into an organizational one. Loyalty and promotions departments may still be separate or reporting into different overarching teams; wider customer relationship management (CRM) crews may be siloed off with little budget or strategic input; promotions may be devolved to different markets with little central oversight.

“We hear it all the time,” says Sam Panzer, Gerber’s colleague and director of go-to-market strategy at Talon.One. “Loyalty is a priority, but the loyalty team doesn’t have access to the data, the budget or the engineering time they need to do anything beyond sending out a birthday voucher once a year.”

How should businesses tool up for the personalization revolution?

When loyalty teams lack true ownership or influence, Panzer argues, they can’t meaningfully impact CX or retention in the ways that personalization pioneers already are. In other words, personalization in promotions needn’t just be about suppressing offers to people who will buy anyway or reducing other kinds of waste – though, Panzer says, there are still enormous sums being left on the table by people failing to do those things. “Businesses spend up to 18% of their revenues on this category, although we should arguably put ‘spend’ in quotation marks because a lot of that is reduction in price… There’s an unacceptably low level of scrutiny on that 18% across the industry. There’s so much value to just doing a better job with that 18% and every percent of that goes straight to the bottom line. Whatever we save there is so nutritive for the business.”

But nor is it just about tailored messaging. What’s emerging, Gerber and Panzer argue, is a holistic, ecosystem view of loyalty in which better data enables smarter personalization, smarter personalization enhances customer experience and improved experience builds long-term loyalty.

For Panzer, the key lies in reframing loyalty and promotions as business outcomes, not tactics. “The brands that are succeeding are moving away from points-based mechanics and thinking about loyalty as the output of great experiences,” he explains. Loyalty, in this view, is not a widget; it’s a result.

As for those who remain behind the curve, where should they start? “You don’t need to overhaul your tech stack to get started,” says Panzer. “But you do need to stop settling for the status quo. Start with segmentation. Start with measuring effectiveness. Just stop doing the same thing for everyone.”