Economic shifts have even the largest ecommerce brands adapting their strategies to include more promotions in order to compete for consumer dollars. At NRF 2023, Saks OFF 5TH CEO, Paige Thomas, stated that the 2022 holiday season was the most promotional the brand has had since her time with the company. While Saks OFF 5TH increased its offers to move excess inventory, other brands are making similar moves to help draw in shoppers who now have less spending power due to inflation.
The tightening of consumer wallets has Nordstrom giving even greater discounts as shoppers have been unresponsive to the typical clearance prices — something the company expects to continue into the second half of 2023. This slowing demand has the retail giant expecting a $200 million hit to its profits.
How can ecommerce brands avoid a race to the bottom in a high-promotion environment? More offers mean lower margins, while not offering discounts only drives price-conscious consumers to competitor sites. Fortunately, our in-session marketing platform, as well as other ecommerce promotion strategies, can help brands limit their offers without limiting conversions.
The downside of promotions
Conversions (completed purchases) can hardly be seen as a negative, but what about when they’re taking away from a brand’s bottom line? Promotions are designed to move inventory, however, they do so at a discounted rate of return. Margin loss alone is cause for concern, yet this isn’t the only negative effect of running promotions without a designed game plan.
Many brands have grown accustomed to deploying offers sitewide. This means that every consumer has access to the same discounts. Exclusion isn’t usually the most effective strategy for ecommerce sites, but it is the optimal way to go about offers. The danger of inclusive deals is that they can encourage shoppers to convert only during promotional periods — drastically reducing profits.
Promotions can also negatively impact how a product is perceived (a double-blind study found that consumers associate discounted products with a lack of performance). The same can be said for the brand itself; the more discounts a site runs, the more devalued the company can become in the eyes of consumers. This can have a lasting impact that results in shoppers being less likely to pay full price for items in the future.
Creating a promotion strategy
Rushing into promotions to keep up with the competition can be a costly lesson. Avoid destroying margins and brand perception by formulating a promotion strategy before launching an offers campaign. This includes setting up key performance indicators, promotions budget, and pricing discounts.
Promotion strategies can be centered around the following:
- Customer acquisition: A Google study found that 87% of consumers who participated said that knowing they got a good deal is important when deciding which retailer to purchase from. With ecommerce brands paying a record amount to acquire new customers — but only averaging a 3% conversion rate on those leads — the companies with the best prices are more likely to see positive results.
- Improving conversion rates: There’s a reason why the weekend of Black Friday to Cyber Monday is ecommerce’s biggest event of the year: every brand rolls out exciting offers on in-demand products. Sixty-two percent of consumers say they cannot complete a purchase without searching for an offer. Providing a discount to this segment of shoppers can be the difference between a conversion and an abandoned cart.
- Customer retention: The number one factor in determining brand loyalty is price. With nearly 65% of sales coming from repeat customers, brands are looking to reward this segment with loyalty programs and exclusive discounts. While the price discounts can impact the bottom line in the short term, repeat customers end up spending 67% more on average compared to new shoppers.
- Offload excess inventory: Retailers are currently facing an overstock of inventory as demand has waned over the past year. Leveraging discounts before a product goes out-of-season allows retailers to move these items while they still have value to the consumer.
Once a brand understands what defines success, it can begin to develop a promotional strategy. Here are 10 proven methods to help optimize offers for minimal margin loss and maximum incremental revenue.
1. Real-time offers
Segmenting visitors by their intent has proven that each group reacts differently to online offers — showing that it can be counterproductive to show promotions to some consumers. Real-time offers suppress or deploy promotions based on a visitor’s purchase propensity. Using our patented Customer DNA™ technology, ecommerce brands can reliably identify whether a visitor is likely to buy, unlikely to purchase, or is on-the-fence.
Likely to buy: This segment is ready to purchase, regardless of whether or not an offer is presented. While sitewide offers have a minimal impact on this group completing their checkout, brands spend as much as 75% of the promotions budget on these transactions.
Unlikely to purchase: This segment is not looking to buy, and will likely not be influenced by an offer. Displaying sitewide offers to this consumer group can negatively impact brand image and train these visitors to expect discounts. Discounts may also turn them off because they’re not in “purchase mode”. Better to let this segment simply browse the site, or invite them to sign up for an email list.
On-the-fence shoppers: This segment is influenceable as they’re considering a purchase but may need an incentive to convert. Sitewide offers can be effective for this group, but real-time offers like single-use promo codes (SUPCs) and a short-term expiration better convey to the consumer that they’re getting a good deal while also providing a sense of urgency.
We’ve tested the impact of real-time offers with some of the biggest ecommerce brands by using our purchase prediction model to assign an intent score for every site visitor. By giving each consumer the same offer, we were then able to measure the lift over the control for each segment.
Here’s what we found:
- Conversion rate lift for on-the-fence shoppers is significantly higher than for all other groups
- The increase in conversion rate for some groups was barely worth the impact on margin.
- The conversion rate for some groups is actually reduced(!) by showing offers.
On-the-fence shoppers are significantly more influenced by offers. When our prediction model indicates that a shopper fits into this segment, we trigger real-time offers for the visitor before they leave the site — giving a tailored nudge to complete their purchase.
2. Free shipping
Fifty-three percent of consumers say they shop online because of free shipping, outperforming coupons and discounts by 12%. Another study found that the main reason for cart abandonment is due to extra costs (e.g., shipping, taxes, and unexpected fees). These percentages show that the majority of consumers make purchase decisions based on whether shipping is free and aren’t as concerned about paying full price for products. More than being a way to incentivize shoppers to convert without promotions, free shipping can also increase the average order value (AOV) by setting a price-point threshold that the visitor needs to meet before shipping fees are waived.
3. Seasonal offers
Products have a lifecycle: going from in-season to outdated as the weather turns from hot to cold and back again. Rather than sitting on excess inventory, brands can move products by strategically offering a small discount on items while they’re still usable — right before they go out-of-season.
Seasonal discounts have added benefits outside of increasing sales as they can also help brands improve consumer loyalty and overall reputation by targeting promotions to specific communities at special times of the year.
A great example of this is Target, which hosts an annual Teacher Prep Event — a back-to-school discount that’s only offered to teachers. This promotion gives 15% off all classroom supplies before the new school year begins. Target also runs promotions for military members on Veteran’s Day.
When layering on-the-fence shopper predictions into a seasonal discount strategy, it’s possible to retain margin longer for highly motivated buyers, while keeping inventory moving.
4. Subscription discounts
Discounts don’t have to be a one-way street. Rather than offering coupons to every consumer, encourage those looking for deals to subscribe to a newsletter, follow social profiles, leave a review, or create an account in order to access exclusive promotions. A perfect example of this strategy is SSENSE, which runs a private sale that’s available to only those with a customer account.
Getting a visitor’s email alone is worth whatever discount a brand gives, as 50% of consumers make a purchase from email campaigns at least once per month and 59% of them say that marketing emails have influenced their buying decisions. Research from Baymard shows that nearly 70% of all online shopping carts go abandoned. Having the email for those with an abandoned cart enables the brand to deploy personalized messages, which have an astounding 41% open rate on average.
5. Order value discounts
Brands can influence higher AOV by incentivizing consumers to buy more to save more. Saks OFF Fifth does just this by providing tier-based discounts to shoppers — such as $50 off purchases over $200 or $100 off purchases more than $400. These dollar markers not only create the sense of a great deal, but they also establish dollar milestones that consumers need to reach before unlocking the best discounts.
6. Bundle discounts
A product bundle takes slow-moving inventory and pairs them with more popular items. The two are then offered at a discount to encourage the shopper with what looks like a better deal than simply purchasing the popular item alone. More than a method of moving overstocked products, bundle discounts can increase AOV with promotions that encourage spending more. Another benefit of bundling is that products can be discounted without devaluing the item or brand. One example of this is Apple making older accessories compatible with newer devices and selling them at slightly lower prices in comparison to their newer counterparts.
Here brands can retain more margin by providing bundled discounts to just on-the-fence shoppers using advanced AI predictions from Session AI.
7. New customer promotions
Many ecommerce brands provide new customers with discounts on their first purchase in exchange for personally identifiable information (PII) — such as an email address or phone number. Smart brands know that welcome messages have an open rate of nearly 70% and optimize this initial communication to relay useful information to the customer.
A recent survey by PWC found that 30% of consumers say that they’re more likely to try a new brand, with younger generations being even more likely. The majority of these shoppers are jumping brands in search of better value, so draw them in using a new customer promotion with the goal of turning them into loyal visitors.
8. Referral coupons
Referral coupons are reserved for those who promote a brand to their acquaintances and receive discounts when those people engage with the company. While the organization is taking a hit in the short-term, referral sources are proven to be one of the best lead sources. As many as 83% of shoppers want to give a referral, yet just 29% actually do. Providing an incentive for referrals can lead to referred customers, who generate 16% more in profits.
9. Future coupons
Offering discounts on future purchases can be the nudge an on-the-fence shopper needs to complete the checkout process. This can be something like “Spend $200 to earn 10% off your next order.” Future coupons help drive conversions and can also boost AOV with incentive minimums. Further, future coupons give the visitor a greater reason to become a repeat customer.
10. Loyalty discounts
Customers who participate in a loyalty program are likely to be some of the greatest sources of revenue for a brand. McKinsey found that 62% of consumers spend more money on a brand after signing up for a paid loyalty program. Incentivizing conversions through a rewards program can do more than drive revenue — it also creates repeat customers. Seventy-five percent of shoppers prefer brands that offer rewards on purchases and 83% of them are more likely to buy again from a company with a loyalty program.
Understanding that the world is going mobile, Starbucks, the world’s largest coffee franchise, invested in a customer loyalty app. Starbucks uses this app to create a seamless shopping experience — allowing customers to buy beforehand and have their order ready when they arrive — as well as deliver offers such as free refills on brewed coffees, free drinks on birthdays, and other free items for hitting certain purchase milestones.
These incentives reward the over 30 million app users, who in turn rewarded Starbucks by accounting for 52% of sales in U.S. stores during the second quarter of 2021.
Ecommerce is currently experiencing a higher promotional environment. Many are searching for a quick, effective lever to pull as revenue number decline after years of record growth. For most, this means adding discounts to the promotions calendar. While this can create short-term wins, the long-term impacts tend to be losses — be that reduced margins or a damaged brand value image. The added promotions can even create an expectation for discounts and have shoppers waiting to purchase until the lower prices go live.
Our in-session marketing platform helps ecommerce brands limit their promotions without limiting conversions by identifying valuable segments of shoppers early enough in their visit to tailor offer deployment or suppression and maximize conversion rate and margin. This not only extends the promotions budget, but it also reduces margin loss by allowing likely-to-buy visitors to complete their full-price purchase uninterrupted and gives a better user experience by suppressing discounts for those who are unlikely to convert.