April 2nd, 2013

Discounting Your Promotions Strategy: Promotions Strategies of the Future

With the economy still not at peak performance, apparel retailers went to the old standby this past holiday season, discounting.  We all know that this promotions strategy just erodes margins and adds little value to the customer, especially loyal ones.  For the online channel, free shipping (the oldest promotion used in ecommerce) was still at the top of the heap this past holiday season.

Customers have come to expect free shipping, especially for orders of significant value (over $100). Free shipping used by a majority of ecommerce websites, and if you’re like many retailers, you’d like to stop this practice all together. Free shipping decreases margins and, in many cases, it can’t be used along side other, more attractive promotions for both the retailer and the customer. Avoid offering free shipping as a site wide promotion; it limits your options due to double-dipping on promotions that will ultimately shave your margins.

Moving forward, retailers must implement a comprehensive promotions strategy to maintain a high level of consumer satisfaction toward their brand.   Savvy retailers know their promotions strategies must be innovative, creative and customized to meet the shopping habits of specific consumer segments.  When building a comprehensive online promotions strategy it is important to create offers targeted at acquiring new customers, increasing average order size, moving excess inventory, and satisfying customers to build strong loyalty. Without a well-thought-out strategy, and the tools to measure success, it is impossible to know whether or not the promotions are generating true return on investment.

Five Actions for Successful Promotions
Using today’s available tools and technology, multi-channel retailers can create customized promotions plans that deliver offers to consumers based on the segmentation of their preferences and shopping behavior.  Promotion-based search results delivered better conversion rates, more than two dozen types of promotions increased customer satisfaction, and promotions overlap created increased conversion rates.

To execute a winning promotions strategy, retailers should follow these five essential actions:

  1. Segment your customers. Segment customers into groups, particularly if your clothing options attract a diverse group of shoppers. By collecting customer data, merchandisers can better understand the triggers that make a consumer react to a specific type of promotion. Tracking consumers by these behavior groups allows retailers to introduce specialized promotional programs and communicate to consumers with relevant offers. Online capabilities facilitate the collection of information provided by consumers when they register on a site and by their shopping habits. Consumers can then be grouped by price sensitivity, product class, order size, number of visits and other relevant characteristics.
  2. Try new types of promotions. The goal of promotions is to cut through the noise created by the market, and ultimately inspire a consumer to make purchase through a designated call to action.  For this reason promotions must be creative, offer real value, and go beyond discounting.  New promotional concepts – such as shipping destination, shipping methods, x first customers, every nth customer, every x order, items per promotion, apply offer to nth item, returns-based, payment method, free product choice, rebates, multiple bonus products and many others – are starting to be used by some innovative apparel retailers on their ecommerce sites.  Retailers are even starting to use stock-level based promotions to move excess inventory. Although there is a lot of diversity in online promotions a word to the wise: be sure to have rules in place for managing promotions to avoid pitfalls such as giving away double offers or unintentionally not providing a consumer with the best available promotion.
  3. Test and track promotions. Once customers are organized into relevant groups and the list of  promotions have been created, retailers can better determine the effectiveness of specific promotions by performing A/B tests.  A/B tests are a comparative form of testing that allows merchants to test several promotion types against a typical offer to determine which option will yield the best results. For example, different promotions can be offered to a single group of consumers to find out which promotion is most effective. This can be as simple as offering a 20 percent discount versus a 30 percent discount to determine discount thresholds or as complex as offering 10 unique promotion types. Since this form testing delivers real-time results, A/B is the best vehicle for gathering data on time-sensitive offers. Testing is also an import measurement tool for safeguarding against over promotion and protecting margins.
  4. Serve Promotions in Search Results. Over the years, consumers have been trained to react to promotions since they convey a sense of value. With more than 70 percent of shopping trips starting with the search key, online browsing is no longer a passive consumer activity.  Since the customer is already sharing personal information when they hit the search key retailers should be actively involved in tailoring search responses to deliver relevant promotions as part of the search results.  Many retailers today use search-based promotions to drive cross-selling and up-selling of products in order to increase basket size – such as suggesting coordinating hand bags and jewelry that are discounted when purchased along with a specific dress.
  5. Go beyond Discounting to Connect with Customers. Deep discounting across the board used to be the norm in the apparel industry. However retailers are getting hip to the fact that offering deep discounts to all customers is serving only to lower margins and cheapen the value of the products among many customers who would probably have purchased anyway. Armed with more precise promotions technology to track effectiveness, today’s retailing strategies are moving towards loyalty-based promotions, such as a “surprise and delight” giveaway. Time has shown that customers appreciate receiving something for free, especially when they are not expecting it. Using these promotions create repeat customers. Little things can go a long way, such as sending the customer a thank-you message after the purchase has been made, then send out a loyal customer offer for their next purchase to seal the deal.

The Bottom Line

Today’s retailers must vary the types of the promotions they offer, to maintain a high level of consumer satisfaction toward their brand. Success is a simple recipe: learn about the most loyal shoppers, promote to a targeted audience, keep customers happy and loyal, and sell products. And of course, remember to be creative. The key is getting consumers to interact with the brand based on their typical shopping practices. Executing effective promotions combines using the best technology with the fine art of truly knowing individual customers.

Tags: insights marketing retail

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