As Christmas gets ever closer, I can almost feel vibrations from the crowd marauding at the front doors of John Lewis!
The world is just recovering from the Black Friday week, an event where the vast majority of businesses slash their prices, front the bill for delivery or throw in a free gift in a bid to loosen your purse strings.
Having worked with, and alongside multiple ecommerce websites, the PRWD team are well aware of the importance placed on offers and the resources needed to organising them. Unfortunately, whether it’s Black Friday, Christmas or earlier in the year, the results don’t always warrant the effort involved.
By the end of this post you should have an understanding of:
- Reasons for and against running offers
- Which offer is right for your business
- How to execute offers onsite
- How you can A/B Test offers
- How to analyse the effects
The pros and cons of offers
At some point during your time in marketing there will come a time when your plans don’t come to fruition. Even the most well thought out and researched marketing plans can drop shy of projections. Competitor activity, customer motivation and supplier troubles can all affect your KPIs and leave you looking for a quick boost to help hit your targets. Offers are often seen as the answer.
A timely and relevant offer can:
- Boost transactions and revenue
- Recruit new customers or engage expired customers
- Raise the sell rate of legacy or slow moving stock
- Increase market share
- Persuade deliberating customers to purchase
Offers aren’t always successful though, as they can also lead to:
- Reduced profit due to acquisition and delivery costs and a loss in product profit margin
- Cannibalised sales as committed consumers purchase during your offer window rather than at full price
- Strains on company wide resources; IT, design, ecommerce, marketing, warehouse, customer service
- Customer dissatisfaction due to product availability, pre or post-offer purchases and a drop in service standards during peak sales periods
- Erode your brand reputation as customers perceive your company or product to be less desirable
Too often companies rely on offers to “paper over the cracks” of their underperforming marketing campaigns, products or websites, instead of optimising their commodities. When a company becomes too dependent on offers they can soon find their sales become intrinsic to offer activity, with high sales during offers but minimal sales at full price. If customers latch on to your offer-led culture it can become disastrous to your profits.
Sales can start to mimic offer activity with orders per day peaking during offers and slumping when a website is ‘clean.’ It is more sustainable to follow a consistent sales pattern (red trendline) with offers as irregular boosts.
But a well placed offer can give you a welcome boost in sales as long as it is based on research and has a strategic goal.
How to choose an offer
There are a multitude of detailed studies available online that will provide you with information about shopping habits. PwC (http://www.pwc.com/gx/en/industries/retail-consumer/global-multi-channel-consumer-survey.html) state lower prices and better deals are the main reasons people shop online whereas UPS (https://www.pressroom.ups.com/pressroom/ContentDetailsViewer.page?ConceptType=PressReleases&id=1433180166893-264) say free shipping is the more important. So what is the best offer for your audience?
User research gives true user insight
Surveys, remote video sessions and moderated research allow you to speak to your customers directly and ask them the questions unanswered by web analytics software. Would your customers prefer free delivery or a 10% decrease in product price? Do your customers save their money in order to buy their Christmas gifts in bulk or do they spread the cost throughout the year? What makes someone purchase from your website instead of your competitors? User research is the only way you will find out what barriers cause your customers to abandon their purchase or choose a competitor. These insight will lead you to offers that will resonate with your audience.
Can you afford to lose 20% margin on your top selling product based on a hunch that a site-wide discount will boost your sales at a rate that keeps you profitable?
Data and offers go hand-in-hand
Although talking to your customers will provide you with insights that you can use to optimise your offers, you still need to have a sustainable business model.
A sitewide 50% off sale is great for conversion rates and exposure but from a business perspective it could be disastrous for your profits. Learn about the products that are struggling to sell and those that fly off the shelf. A focused 10% discount on your slow moving 52inch HDTVs might be just enough to get your customers interested, whilst not harming margin on your top selling tablets and phones. Remember a small and informed cut on margin now is better than a hack/slash come January.
When using data you need to ensure it is accurate and that you are looking at the right reports. A potential banana skin is the free delivery threshold. The theory is that if you set this just above your average order value, your customers will be persuaded to throw an extra pair of socks into their basket so they save money on the delivery charge.
The things is, AOV is often calculated using mean, dividing total revenue by the total number of transactions, which has no actual correlation with individual order values.
Using the mean order value of £59.30 from the example below, there aren’t actually any orders close to that value. Order ID 10004 is the closest however this customer would have had to raise their order by £11.80, not exactly a saving when you consider delivery charges often sit nearer the £5 mark.
If we use mode, the value that most often occurs, then we notice that there are two orders at £12.50.
Whilst £12.50 is more commonly charged than any other value in the example is it representative of the other values?
Looking at order values in £5 ranges, we can see that more orders fall between £43 and £48 than any other £5 range, around a third of total orders. Setting our free delivery threshold in relation to the most popular order range, will mean that our offer is relevant to the largest percentage of potential customers.
Company resource shouldn’t be ignored
A sometimes overlooked consideration when planning an offer is your company resources. Can IT deal with the additional traffic levels? Do your buying and merchandising team have enough stock to cope with the inflated sales? Are there enough warehouse staff on call to keep your delivery service at its usual standard?
Company wide communication is essential during peak sales periods to avoid disaster.
You know what offer your customers prefer. You know what threshold is likely to invite higher spend. You know that your company can deal with the uplift. So how do you execute your offer?
Whether it’s your marketing strategy or your onsite content, you need to be relevant to your target audience. If a potential customer has never viewed the children’s category on your website or interacted with your new toddler fashion campaign, it’s probably not the best use of your acquisition budget targeting them with a free baby rattle email offer?
The same is true of where you showcase your offer. If the majority of your users enter the website at a category or product level, shouting about your offer on the homepage is going to have little impact. Clearly communicate your offer along with benefits and T&Cs in the areas of your site most relevant to the audience.
We’ve all been lured in by a 40% off everything offer only to find a tiny asterisk (*) referring to a large set of T&Cs that lists all the products that aren’t classed as everything, including the one thing you desperately want to buy.
Be transparent and honest with your audience and you’ll have them coming back for more, potentially with friends.
Listed below are just some psychology principles that improve the success of offers:
Anchoring/Pricing – the perception of price is often based on the context. For example highlighting the difference between “was/now” prices or the amount saved is a great way to accentuate a discount.
Social Proof – we are likely to follow the patterns and behaviour of similar people in new or unfamiliar situations. Quash user concerns by stating the number of customers that have claimed an offer.
Scarcity/Limited duration – we infer value in something that has limited availability or time to respond. Give your offer an end date or communicate stock availability.
For in-depth discussion of the principles mentioned above and other examples including loss aversion, variable rewards and limited access, check out Matt’s psychology blog 10 ways that you can use psychology to improve your conversion rates
Testing your offer
Whilst user research and data analysis can point us in the right direction it is imperative that anything that can have an impact on profit is tested to fully understand its effects.
What offer threshold will yield the maximum profit? What messaging resonates best with your audience?
When we use our research to turn our offers into hypotheses, we can use A/B testing (otherwise known as split testing) to prove them and we can use the test results to glean additional learnings that can be used for future A/B tests and offers.
For more information about testing during an offer window, see Senior Optimisation Strategist Nicole Prior’s post on Black Friday A/B testing.
Analysing the effects of your offer
Once your offer is live, you should be analysing traffic, sales and stock to ensure you can cope with demand. A surefire way to anger customers and harm future successes is to coax people in with a one time offer, only to refund their order or postpone their enjoyment.
After the dust has settled and your offer has come to a close, you need to assess how successful it was. There are numerous factors to calculate depending on the goal of your offer.
- Looking for a boost to revenue – have transactions or AOV risen and at what cost to margin or operating costs?
- Need to clear through some stock – what was the sell through rate of a product in relation to previous weeks?
- Do you need to grow or re-engage your audience? – were your sales from new or returning customers? Has the lifetime value of your customers changed?
If you’ve been testing elements of your offer (which you should have) you will also need to analyse the test results. Learnings should be clearly communicated across your business so different departments can apply them to future campaigns.
The best offers aren’t the ones that produce the most orders, achieve the highest revenue or attract the largest audience. The best offers are those that leave your customers feeling happy and your company in profit.
When planning your next offer:
- Think about what your customer wants
- Have a clear goal in mind for your offer
- Utilise your data
- Communicate across your company
- Be relevant, clear and persuasive
- Run A/B tests
- Analyse the results and share your learnings.
PRWD hope you have a lucrative Christmas period and that your Black Friday week was a resounding success.