Well hello there! Catherine Langman here with you on the Productpreneur Success Podcast! Welcome to the show if you’re a new listener, and welcome back if you’re a long-time listener!
I’m super excited to bring you today’s episode. Today we’re going to discuss the topic of Discounting. Basically, when, why and how to use incentives in your online store to drive new and repeat customers from spending money with you.
And the reason I want to talk about this topic right now, is because sales have been down for a lot of eCommerce businesses over the last month or two.
In truth, it’s been a bloody hard year for so many brands. The impacts of Covid-19 on manufacturing and supply chains, the astronomical increases in freight costs, and now the war in Ukraine has impacted things like fuel prices and food production, causing our cost of living to skyrocket.
The upshot is a double whammy – sales have slowed and margins have slimmed.
And whenever this happens – where order volumes drop – I also see a lot of small business owners worrying that it’s something they’ve done wrong that’s causing customers to not like them or want to buy from them. There’s definitely a fear that things will stay the same and never improve.
I know so many small business owners are on the ledge and wondering if they should just pack up and go home.
Now obviously I can’t answer that question for you, but I do want to say that in my career in ecommerce over the last 15 + years, the ups and downs are always there but they never last.
One tool that we all have in our toolkit to help when sales are down, is incentives.
Yet still – so many brands don’t want to use them for fear of training their audience to expect them to always be on sale, or to only buy on sale. I’m telling you – it literally hurts my heart when I see eCom businesses struggling to hit targets but also say ‘NO’ to doing more promotions.
We all need to incorporate offers into our marketing whilst simultaneously managing the fine line between providing offers but not always being on sale.
And that’s what we’re going to talk about during this podcast episode.
But before we dive further into this episode, I’d like to ask you a quick favour: if you love this episode, would you share it with one or two of your business besties? Especially if you know they’re looking to generate more traffic and sales on their eCommerce website this year. It’s super easy to share – just click on the icon next to the podcast on whichever platform you listen to it, copy the share link and then send it in a message to your friends.
OK, let’s dive into the episode…
So there are three main reasons why a brand or online store should use an incentive:
- To help convert new first-time customers,
- To help an existing customer to come back and buy from you again, and
- To stimulate sales when revenue drops across the board.
And given there are only three ways to grow a business:
- Acquire more customers
- Increase the value each customer spends with you, or
- Increase the frequency times a customer buys from you.
It makes logical sense that we use incentives to help pull each of those growth levers.
I know of and observe a lot of small businesses who don’t utilise the kind of marketing that helps to increase their customer lifetime value or repeat purchase volumes. They don’t take advantage of marketing channels like email at all, so they’re not tapping into that goldmine of value they’ve been collecting in their customer list.
And they just don’t want to send out incentives at all either, like I said earlier, for fear of training their audience to expect them to always be on sale.
Don’t worry – I will share some alternatives to deep discounting later in the episode, in case you’re after some creative ideas for the kinds of incentives you can use.
But before that, I want to share even more details with you about the importance of focusing on customer loyalty. I’ll share three key reasons why customer loyalty is of critical importance to both new customer acquisition as well as customer retention and repeat purchase.
1. You won’t break even on one-time shoppers.
Because customer acquisition costs in e-commerce are high (that is the cost of converting a website visitor into a paying customer, such as the cost of advertising), to recoup your investment you need to convince customers to return to your site time and again.
For example, the average online clothing shopper is often not profitable until he or she has shopped at the site four times. This implies that the retailer had to retain the customer for 12 months just to make a profit!
Here’s one I love and one I can back up by my own shopping experiences:
2. Repeat purchasers spend more and generate larger transactions.
The longer their relationship with an online retailer, the more customers spend in a given period of time.
I think this makes logical sense really. The first time a customer buys from you, they’re likely to be a little tentative about risking too much money on a retailer they’ve never bought from before or on products they’ve never used before. Just in case it proves to be a waste of money.
As a side note – this is precisely why we all need to work hard on providing an amazing customer experience. We get one chance to wow a new customer and if we stuff it up we might not woo them back for another order.
Many of our clients have heard me recommend over and over again to go and do a purchase with Birdsnest.com.au – I tell them it’s for market research purposes only so surely it must be tax deductible! Haha. But it is one website that does a brilliant job of providing a great customer experience, both with the experience of shopping on their website, but also receiving your order. And I can share that I have definitely spent more per transaction with them over the years.
So it’s worth trying to cultivate an audience of customers like that – the ones who I affectionately refer to as ‘rusted on’. And using various incentives will help you do that.
OK – next tip:
3. Repeat customers refer more people and bring in more business.
Word of mouth is the single most effective and economical way online retailers can grow their business. Word of mouth referrals have the highest trust rating and new customers are likely to place their first order within 2 weeks of receiving that referral!
And loyalty, it turns out, can be a key driver for referrals. On average, a customer will refer three people after their first purchase, and after 10 purchases that same shopper will have referred seven people to the site!
Further to that – personal recommendations and word of mouth referrals are literally the most trusted form of advertising at 92%. Meaning, a new customer is going to convert at a massively higher rate compared to one who finds out about your brand from any other form of advertising or marketing.
So, again – using a variety of incentives to help drive this level of loyalty is only going to benefit you more and more over time in terms of acquiring more new customers as well as repeat orders.
Hopefully by now I’ve convinced you that it’s worth using incentives to help convert more first time customers as well as repeat customers. Especially so if you’re experiencing a bit of a lull in revenue right now.
When should you use incentives?
As I mentioned earlier – you definitely want to use incentives to help stimulate sales when you’re going through a dry patch. Like right now, consumer spending across Australia is down, but that doesn’t mean everyone stops spending completely. When people actually need to buy the kind of product you sell, you want to be the one they buy from, and right now if you’re offering more value than another vendor you’re more likely to win their business.
Additionally, you want to use incentives as a reward that you give your customers for completing certain brand-building behaviours.
While the incentive can take many forms, such as reward points, discounts, freebies, advance access to newly released products, or exclusive sales.
But regardless of what type of incentive you use, it should be aimed at encouraging customers to perform and repeat certain behaviours that help your brand in one way or another.
They aren’t just rewards for making purchases (although purchases are the most popular behaviour to reward.)
Some behaviours you could reward customers for with incentives include:
- Making repeat purchases
- Writing reviews on your website
- Referring friends to your business
- Upgrading to a subscription
- Creating user-generated content
What sorts of incentives work best?
It can be so hard to come up with new ideas for an offer or promotion, and the path of least resistance tends to be resorting to whatever you did last time because it worked.
But this IS the kind of strategy that will train your audience to expect you to always be on sale.
So you definitely want to mix it up a bit!
Ultimately, your offers need to demonstrate two things:
- Show your customers seeing that they can save money, and
- Leave your customers feeling that your business or brand truly understands and cares about them.
Ever seen a bank or an electricity company advertising a really low interest rate or electricity price for switching providers? Yet they don’t offer the same deal to their existing customers? It doesn’t motivate you to stick around, does it.
Here are some ideas for incentives or promotional offers you can try. You may need to combine them in order to engage with different customer segments.
- Cash back
- Store credits
- Free products
- Discount for upgrading to a subscription
- Free shipping
- Branded swag (ie True Protein)
- Free with volume buy, like buy 3 get 1 free
- Free product from or gift cards to external businesses that your customer base appreciates
- Discounted bundles or value packs
- Discount with upsell (like True Protein again)
- Free upgrade to express shipping
I also love mixing it up by theming the offer. Like, theme it around the time of the year, for example a skincare brand might do an offer or incentive themed around repairing skin in winter ready for the party season. Or an eco brand might do an incentive themed around World Environment Day. Or a maternity brand might do an incentive themed around World Breastfeeding Week. Or a baby swaddle brand might do an incentive themed around World Sleep Day.
By theming the offers in this way, it keeps things fresh. Even if you resort to only a handful of actual offers, the fact that they’re named and themed differently means your customers will perceive the offers differently as well.
Tip for success
One tip for a successful offer or incentive is to keep it simple. This is one reason why I typically don’t reach for a ‘Spend & Save’ offer with multiple discount thresholds. I know this works well for a brand like Country Road, but they have the advantage of being able to explain it in-store.
When you sell online, you need to make it easy for customers to understand what they need to do. That means, don’t require them to spend time figuring out how the offer works. The more brain power customers are required to spend thinking about how to do something, the less likely they will be to do it. Plus, a complicated offer will increase your customer service enquiries, taking up way more of your time. None of us have the patience to figure stuff out anymore, we’ll just go shop elsewhere. So don’t hurt your conversion rate by making your offer hard to understand.
At the end of the day, it’s worth it to use incentives as part of your marketing. It’ll help your ads and emails convert better, and your results will slowly start to snowball if you’re also focused on building your email list and sending these incentives to them over time.
Right now, we’re seeing the biggest brands and retailers running promotions, sales and discounts. That means that everyone is experiencing a revenue contraction. It’s up to you whether you let the big brands take all the consumer discretionary spend right now, or whether you’ll throw your hat in the ring for some of it too.
If you’re currently doing it a bit tough, or you’re just looking for ideas or support with your ecommerce marketing, make sure you join our free Rockstar Productpreneur community. To join, all you need to do is head to catherinelangman.com/rockstar
Or, if you’re keen for some help with this stuff, please just give us a shout! Whether you need help to learn and implement these things, or you’d like to outsource to our team, just head over to productpreneurmarketing.com and you can book in for a free strategy session.