Published on 30/05/19 by James Vjestica.
When aiming to grow your eCommerce business’ conversion rate, it is essential to think carefully when deciding which promotion(s) to use at the most appropriate moment.
Organising promotion campaigns can be challenging as several key questions arise such as ‘how do I attract new customers?’, ‘how do I retain current customers?’, ‘how do I make sure profit margins are high?’ among others.
These factors are vitally important to consider as, for instance, using the wrong promotion or even too many could potentially reduce your profits by a considerable amount. So, before you go ahead and make a promotion live, it is worth taking a step back and asking yourself what you want to achieve from it. Do you:
- Want to see an increase in revenue?
- Want to see a higher percentage of returning customers spending money with you?
- Want to see an increase in new customers spending money with you?
- Want to gain exposure by attracting interest during specific holidays e.g. half term and Christmas?
Along with these questions, it is also imperative to be aware of the advantages and disadvantages of using promotions, especially if it relates to discount pricing.
What are the advantages of discount pricing promotions?
If utilised correctly, promotions in the form of discounts can quickly attract attention from potential customers and act as a ‘win-win’ for all parties involved; the customer saves money and the store accrues more sales. The following reasons can break this down further:
- Discounts attract both current AND new customers. If this promotion attracts more customers than you usually would, provided that you are sensible with how much discount you are offering, you will make more money in the long term.
- Discounts can promote brand recognition. Using the correct promotion such as discounting products can create a reputation as not only being the place to find a certain product, but also where to find them at a fairer price than your competitors.
- Discounts can present an opportunity to both cross-sell and upsell. This can make up for any money you sacrificed by providing a discount offer.
What are the disadvantages of discount pricing promotions?
Although there are undoubted advantages to this promotion approach, it can quite as easily put your company at a disadvantage if you do not plan appropriately. Without due care, the following could potentially occur:
- Discounting too frequently could only attract customers when the prices are reduced. This could cause your company to lose credibility, leading the customer to lose any sense of urgency and essentially wait for the next discounted price. If the promotion is used too often, you will look like a discount store.
- Discounts could lead to a downward pricing spiral. Discounting too often may cause difficulties when trying to sell a product at full price and, in turn, could lead to selling products at progressively cheaper prices.
The disadvantages for discounting could be detrimental, so it is important to weigh up your options before launching a promotion of this nature. Failing to do so could lead to a loss in reputation, custom and most importantly, income.
How do you decide on the best promotion strategy for your business?
The main question to ask yourself is, do you either compete on price or on quality? Either way, focussing on building value is more ROI-effective than just lowering prices. With this in mind, it would be advisory to take the following steps into account when deciding what promotion campaign to use:
Deciding on what type of promotion to use
Most commonly, there are three types of promotion which include:
- A cash amount discount on product(s)
- A percentage discount on product(s)
- Selling product(s) for a fixed price
Bearing these in mind, the most popular strategies include:
- Free delivery – a one-off offer or once a certain amount has been surpassed e.g. ‘free delivery if you spend over £30’
- % discounts
- Cash amount discounts e.g. ‘£50 reduced from £80’
- ‘Buy one, get one free’ (BOGOF)
- Discount on a customer’s next shop
- Combination offers – buy several items together from a selected range at a special price
- A free gift when a certain amount has been spent
- Multi-buy discounts e.g. buy x amount and have x% reduced or free delivery
Using discount codes
Retail discount codes have continued to grow in popularity and this trend does not show any sign of changing. Online retailers who issue these coupons can benefit in the following ways:
- Attracting new customers
- Retain returning customers
- Encourage first-time product trials
- Offload excess stock
- Promote newly-launched products and under-used services
Offering discounts as rewards
Incentive discounts generally ask their customers to perform certain action(s) to gain a discount on a product in return. A common example would be to offer a % discount to a customer if they are to essentially market your company by sharing a product over social media.
The main aim when offering discount strategies is to not only gain new custom, but to also attract more transactions from returning customers. This promotion type is clever as not only does it reward desirable behaviour from your customers, but more importantly, you are promoting your company via a third party to increase further transactions. If used correctly, you could see a healthy return on investment.
Using abandoned basket incentives
It should be treated as a missed opportunity if a customer fills their shopping basket but does not take the item(s) to checkout. Sometimes customers can be indecisive and require a gentle nudge. For this reason, another type of promotion is to send an email if this happens offering to help with the checkout process, or even offer a small discount or other incentives to encourage the sale.
Offering discount should be used sparingly however, as this approach could lead to customers purposely leaving items in their shopping basket with the incentive of having the price reduced!
Ensure promotion offers are clear
In order to save any confusion, you MUST make sure that the terms of respective promotion that is being offered is clear to the customer. For this reason, it would be advisable to have the promotion on view throughout the customer journey of the purchase to save any confusion as this could lead to lost purchases.
If a customer is expecting a certain promotion and they haven’t been awarded with it, this can cause distrust and can therefore negatively affect your reputation. Speaking of which…
Do not cheapen your brand
The previous point goes hand in hand with this one. Above all, market yourselves in a fashion that you wish to be identified by your customers. Remember, reputation is key.
Resist the temptation to use promotions without any concept as to why it is being used. Discounting too frequently for example will damage your image and the overall quality of your products and perceived value as a company. In other words, have a carefully constructed promotion strategy in place before you put it into practice.
Lastly, take a note of which promotions are successful
For your promotions to be beneficial, you must be able to measure this success in order to fully understand which campaigns work. If your promotions are not seeing a return on investment, you are losing profit, which is a sign that you need a new strategy as soon as possible!
Not EVERY strategy works for everyone, meaning it would be a good idea to ‘trial and error’ to deter what works for you.
Promotions – handle with care
Using a promotion without any plan or idea of how it will be implemented could quite easily lead to a loss in reputation, custom and income. You must plan ahead by deciding which promotion(s) to use for what purpose and keep a close eye on if there is a return on investment. Taking note of which promotion(s) are effective for you will put you in a strong position moving forward.
By taking on board the advice in this article, if you are already a healthily run business using promotions can be of huge benefit to you. If you are reliant on promotions to keep your company afloat, then your problems run much deeper. In other words, with careful planning and a common-sense approach, promotions can be a key factor in any company’s business plan!
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