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April 27, 2018

The complete guide to discounts that convert

Mike Sędzielewski

A smart discount policy might bring a substantial tailwind to your business. Every company has a myriad of factors which shape their rebates, however, there are some research-based discounting practices which you can use to improve any promo campaign. Read on to learn how to leverage consumer habits to drive more revenue and increase brand loyalty.

‍Photo by Anne Preble on Unsplash

Facts and Figures

98% of new visitors don’t convert into a lead or sale (SmartInsights)

52% of the adult population will use digital coupons in 2018 (eMarketer)

49% of consumers will gladly switch brands for a coupon (GfK)

Coupons and auto-applied discounts have become must-have tools for modern ecommerce.

Set your goals

You can grow your revenue in multiple ways. Different types of discount work well for different goals

  • customer acquisition - 1, 2, A, B
  • sales increase - 3, C, E
  • customer retention - 2, 4, 5, B
  • getting rid of old inventory - 1, E, C, D
Promotion types
  1. Generally available coupons
  2. Unique one-off coupons
  3. Auto-applied discounts
  4. Loyalty programs
  5. Gift cards
Promotion features

A. expiry date

B. customer segment only (e.g. only for new customers)

C. min/max order value (dollar, volume)

D. buy one get one free

E. product bundling

How to Pick a Discount Value & Message

Simplify calculations

Customers don't want to think too hard about their purchase, they don’t want to do the math. They'll just go with what sounds like a better deal:

  • Free shipping is recognized as the most wanted because it’s easiest to understand
  • Buy one get one (BOGO) free might be perceived better than BOGO half-off. As the latter deal always discounts the lower of the two prices, customers tend to search out the cheaper items for the BOGO pairing and churn in effect.
  • For small prices, percentage discount might be favored over the dollar value, e.g. for the price $25, 40% > $10; for bigger amounts, dollar might beat percentage, e.g. for the price $350, $50 > %15.

Achieve instant gratification

Shoppers prefer to be rewarded immediately

  • The minimum value for a percentage-based deal to stand out to customers is 20%.
  • 40% of shoppers prefer receiving a discount over loyalty points.
  • Your customers are much more likely to buy something if they have already bought something else.

Appeal to goals

Consumers focus on the goals that are most obvious or most relevant to them at any given moment

  • 50 gift cards for a particular product may convert better than a general $50 off because it has an attached goal.
  • People are either motivated to achieve positive outcomes or to avoid negative outcomes. Match your promo deal message to your customers’ motivation in order to increase interest.
  • Get customers to voluntarily do something small for you to make them more likely to do something big for you later
Studies confirm our problem with fractions

Akshay Rao of the University of Minnesota and his team conducted an experiment where they asked a U.S. retailer to promote Fruits & Passion hand lotion — which is normally $13.50 — by offering "50% more free" for a time period, and then at a 35% discount, which is a slightly better deal. The retailer ran each promotion every other week for 16 weeks. The store was able to sell 75 percent more when the product was marked as "50% more free."

People spend more when they feel “good” about themselves

Consumers are more willing to spend on premium products if they feel “good” or moral about themselves. Customers will feel “good” about themselves if they feel they have done something moral, or something that aligns with their values. This could range from making charitable donations to buying environmentally-friendly products which you can offer to make on behalf of them.

Target & Test Your Deals

Having the ability to target and test promo campaigns against your marketing goals is the prerequisite of an effective promotional strategy. Here’s how you can design discount campaigns to move towards your business objectives.

Choose the substance of an incentive

  • product-specific offers - different incentives for products, product families, or specific variants
  • customer segment-specific deals - targeting different discounts to customer split by e.g. age, location, loyalty level, etc.
  • order value thresholds - amount and quantity min and max limits   
An example of targeted coupon offer being part of a discount experiment focused on up-selling:
Assumption: can we drive more revenue by requiring willing-to-buy customers to spend at least 150% of the average order value to get the discount?

Personalize Delivery Channel

In the era of marketing automation, it’s not only about mass emails and popups. Use the omni-channel approach in the incentive distribution to keep up with consumers’ mobility:

  • Dedicated landing pages
  • Newsletters
  • SMS
  • Print
  • Personalized popups
  • Push notifications
  • Invoices
  • Live chats & chatbots
  • Social media
  • Gated content
  • Paid ads & retargeting
  • Product reviews
  • Personalized emails

Choose the Right Timing

Use artifacts which drive the sense of urgency to get customers attention

  • Set short expiry coupons (consider adding counters to make it explicit)
  • Include holidays, unofficial holidays into promotions’ theme
  • Remind about unused coupons just like you do with abandoned carts
  • Figure out the best timing for promotion delivery for specific segments
Habits:
  • People are more motivated to pursue goals when they reach the “beginning” of something. Likewise for birthdays, holidays, and anything that they perceive as a “fresh start”.
  • Self-control is like a muscle: if customers use it too much, it gets exhausted and they are more likely to indulge. Self-control is strongest early in the day and right after meals.

Combine Presentation with Context

Increase your conversion rate by applying presentation tips which influence customer behaviour:

  - Always show a reference price
  • People make purchasing decisions based on how much they value the deal, not just on how much they value the product. Put a relevant price that makes the real one look good by comparison. Don’t just tell them “It’s X% off!”
  • Compare to higher prices even if the product is not on sale. Make sure the reference price is relevant, whether an old price, a competitor’s price, or the price of a similar or related product
  • People are attracted to products that are clearly better than some other option in their choice set (a “decoy”) regardless of other options
  - Get your foot in the door
  • Get customers to voluntarily do something small for you in order to make them more likely to do something big for you later. Get them to express their opinions, values, or preferences (either by asking or by observing), and then remind them of these as they shop.
  • If you want more customers to choose a specific item (out of a list, choice set, or anything else they are reading), put that item first in line. Make sure your customers see positive information before negative information because they will put more weight on whatever they process first.
   - Decrease self-control to increase purchase propensity
  • Prompt a non-obligatory and relevant survey to reduce customer willpower while not discouraging them from a purchase
  • Frame promotions such that shoppers fear to lose the opportunity in tandem with being excited about your products
  • Require customers to make difficult product trade-offs, decreasing their self-control, by presenting them with a pair of products and asking them which they like more

Measure Results from Day 1

Before promotion roll out, prepare fine-grained metrics to be able to see what works and what doesn’t::

  • revenue driven with a campaign
  • Number of coupons redeemed
  • order value changes caused by displayed deals
  • new visitors and customers attracted with an incentive
  • gift cards balance spend
  • changes in targeted customer lifetime value
Measure success rate against:
  • promotion type
  • discount value
  • customer segments
  • marketing channel
  • engagement date & time

Keep an Eye on Margins

Consumers share coupon and promotion news with a speed of light. Make sure you’ve prepared your campaign for misuse and fraud:

  • bird’s eye view - set up a dashboard showing campaign performance, including notifications
  • prevent coupon leakage - cap the number of redemptions, use unique, one-off coupons
  • watch out for budget - ensure the campaign is automatically stopped when a promotion goal is achieved
  • use product-specific deals - always strive for restricting promotions to product, variants, or product families
  • campaign approval workflow - agree who can start or stop a promotion in your organization and when
With this article, we’d like to announce a series of posts on promotional psychology by Alexander DePaoli, Visiting Assistant Professor of Marketing, Northeastern University. Subscribe and get profound, research-based insights on how to design your promo campaigns.  
Tagged:
coupon, discount, coupon marketing, best practices
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