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CASE STUDY
How to manage mass refunds and gift cards in the time of pandemic

How to use discount marketing to increase your ROI

Transport, healthcare, travel, fitness companies (and many more) prove that discounts can be effective tool for ROI no matter the business type or size.

This post will show you the most profitable discounting strategies for your business.

You will:

  • learn the pros and cons of discount marketing.
  • see how to get the most out of sign-up discounts.
  • know how to increase engagement with referral discounts.
  • be able to drive customer loyalty with loyalty discount marketing.
  • And more.

I can't wait to share these tactics with you, so let's dive in.

How to use discount marketing to increase your ROI?

As a company that builds advanced promotion systems every day, we are very often asked about recipes for efficient discount strategies. The fact is, we can’t give you any ready-to-go list of to-do’s, and we can’t even say if discount marketing is what your brand needs. Every business is unique and requires a unique approach. What we can do, and want to do in this post, is to show you which promotion types you should test to find a matching discounting strategy for your business. You’ll see how to measure your efforts and estimate the performance of each discount. We divided the promotion examples into three universal categories based on the type of consumers’ interaction that you would like to invoke:

  • sign-up discounts,
  • referral discounts,
  • loyalty discounts.
Discount marketing – examples of discount messages

To Discount or Not to Discount? – The Fundamentals of Discount Marketing

And the answer is... it depends. It doesn’t mean you need to fight a battle that may end with a costly loss to figure it out. The key is having a well-planned strategy based on empirical results. Tests are the only right way to verify how your audience interacts with different types of promotions and discounts.

How to test discount strategies?

You should start with small campaigns of unique codes equipped with various discounts and rules. Moreover, you need to divide your current audience into groups and offer only one type of a coupon at a time. Results can be estimated with the following formula:

  • Use discounts with unique codes as incentives to track and limit your efforts with ease.
  • Select two groups amongst your audience. The first (tested group) should get a discount code, and the second is a control group with no incentives. Choose representative groups to make sure you receive credible data.

Now, do some simple calculations:

Discount marketing calculations-net revenue per visitor

NR above $0 means you have run a beneficial campaign and the discount worked out. Of course, for more accurate feedback, you need to use more advanced algorithms with more specific factors, but this one can be perfect to start with.

More tests mean more credible clues for the future, so you should treat all marketing efforts as separate tests and track them on the run. In the beginning, it's good to test different discounts on previously-mentioned unique codes; they can be tracked easily.

Coupons are very flexible promotion tools and enable you to tailor discounts to the specific matter of your sales. Although, keep in mind, that versatility brings a vast amount of possible campaigns, so you need patience and time to find discounts that will perform really well for you.

If you know that “92% of consumers used a coupon on a purchase in the past year” (2017), then you know that testing discounts is worth your time and effort.

"Getting a coupon has been physically shown to be more enjoyable than getting a gift."

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Learn more in our not-so-short guide to coupon marketing.

Acquire New Customers - Sign-up Discounts

A sign-up discount is what many companies offer their potential customers. However, in case of new visitors, it’s impossible to use personalized incentives or provide relevant targeting. Truth is, you don’t know anything about new users until they decide to share their data with you. If you don’t have a backup like order histories, you need to trust your tests. We recommend starting by checking the performance of different discount variants before you decide which one should be your standard sign-up offer. An example schedule could look like this:

  • The first week, offer a 10% off coupon code for the first order.
  • A week later, run a cart-level sale, with an auto-applied 10% discount.
  • The third week, offer a $5 gift card to use if an order is over $50.

This schema repeated through several weeks should give you credible clues. Meanwhile, you can test, not only discount type, but also choose the best channels (emails, SMS, live chat, etc.) and discount timeframes.

Remember to equip all the discount codes and auto-applied promotions with expiration dates. Codes valid only within a short time window are a great tactic to make customers purchase now instead of later (or never).

Another thing you could do to make your sign-up discount more effective is to create a new design for your welcome message. Imagine you sent an email to a potential customer with a 10% discount on everything. Besides warm welcomes and a coupon code, he/she gets a P.S. with a list of all active promotions. Even if your typical welcome discount doesn’t convince a customer to purchase, another one may do the job. A client may think standard a 10% off everything is not enough to make a purchase, but 20% off a specific product he/she is interested in is definitely worth it. By selecting proper discount strategy, you're increasing your chances of great ROI coming from your coupon campaigns.

Welcome/Sign-up Discount to increase discount marketing strategy ROI

Convince to Re-Purchase - Referral Programs and Discount Marketing

Referral programs can bring in new customers and better customer retention. To make it possible, rewards and program rules should be consistent with the dynamics of your sales. If you sell products needed once per couple years, coupons for a second purchase will fail with a high probability. On the other hand, if your services are used day-to-day, rewarding each time a new customer is referred may be expensive.

In the first case, consider collaboration with other brands, which may be attractive to your customers. You can offer gift cards for their services or coupon codes for free products.

Stores with everyday products may use gamification to gain more interest and retain customer engagement. You can use a multi-level reward schema or social media to bring more life into your referral workflow.

Customers can be rewarded if their referral helps you acquire new customers, and also it helps you to spread your offering via word-of-mouth. For example, you can offer a 20% discount for customers who refer at least three clients (who purchased) and an additional 5% discount if the referred customers shared your social post. Ultimately, a reward ladder should engage customers with more and more attractive rewards along with a growing number of referrals.

Referral marketing requires advanced tracking to keep it under control. No matter the discount type, remember to use unique codes that can be assigned to particular users and tracked to measure a number of referrals. In case of social media share, use specific tags to manage referral activity of your customers.

Referral programs and discounts that increase ROI

Flash-sales should be fast and temporary. They can work well for your customer retention rate if you learn to use them correctly. First of all, short expiration dates. Such campaigns should be limited to one to two days, or even to a couple hours of hunting for a desirable deal. Recurring flash-sales give your customers a good reason to visit your store regularly. You can send a message the day before a campaign fires off or launch it unexpectedly during the times you have the most traffic.

Short, dynamic campaigns are a significant part of discount marketing. They deliver an enormous amount of relevant data that you can use to model long-term promotion strategy.

Flash sales, discount marketing that boosts ROI

Use Discount Marketing to Build Loyalty and Boost ROI

Building loyalty starts from the very first interaction between a customer and your brand. It requires lots of time and patience to change clients from newbies to loyal ones. In this section, we are going to focus on discount marketing as a tool to instil loyalty. If you would like to dig deeper, you can read our recent article and explore the complex psychology behind customer loyalty.

Loyalty program

Discount marketing is a part of most loyalty programs. However, before you define a program structure, you need to determine who your loyal customer is? Don't make the common mistake of trying to drag everyone into a program. That is not the point. Such strategy often ends up with wasted resources due to dozens of cards being given out and forgotten by customers.

A segment of loyal customers should include the part of your audience that brings the highest revenues. The point is, to show them your appreciation and build strong relationships to not only keep regular customers, but also gain brand advocates.

Discounts you prepare should be outstanding, personalized, and unavailable for customers outside the loyal segment. Moreover, the type of offer is as important as the way you present those offers to your loyal clients. Each message with a coupon code or gift card should create a feeling of getting something exclusive, far more than the standard. For example, you can inform a customer in the message about the fact that only a few customers got the deal you have just sent them.

The role of discount marketing in your loyalty program depends on how you design it. Although there is no silver bullet rule, we recommend the combination personalized discounts with gamified experiences and a multi-level reward structure. We wrote more about the loyalty program with discounts in this post.

Big Dates - discount the occasions

Besides the loyalty program, you can instil loyalty by celebrating the dates important to your customers. Using advanced personalization requires paying some attention to particular customers and explains why you shouldn’t overextend your loyalty segment. Birthdays and anniversaries are a perfect way to surprise your best audience with a coupon code or gift card.

Even a birthday gift, which may seem a standard idea in discount marketing, still may be a surprise that your customer will remember and appreciate it. The key is to make your message personalized and the discount attractive. You may go through order history and figure out what discounts and products would fit each customer best.

Summary

Every discount marketing strategy should have a solid backup consisting of many tests. There are no universal rules that guarantee you an effective promotion strategy with guaranteed success. Nevertheless, the fact that companies we support come from such diversified market fields like transport, healthcare, travel, fitness, (and many more), proves that discounts can be effective no matter the business type or size.

Check out our blog post on 15+ ideas for great sales promotions!

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