More Is Not Better: How to Effectively Target Retail Promotions

More Is Not Better: How to Effectively Target Retail Promotions

Even though we’re loyal customers, we still check to make sure we have a coupon before heading to the store. The retailer sends us coupons all the time, so it would be crazy to buy anything without using one. These promotions certainly drive purchases, otherwise retailers wouldn’t send them. Customers have learned to wait for a coupon to make their purchases, so retailers need to send more coupons to drive the same sales. For instance, you could send a broad discount to your new subscribers to encourage immediate action, but send each high-value shopper an email that promotes new items in their favorite category. You may find that many of those loyal customers will be willing to purchase new items without a discount. Create a segment of shoppers who have purchased in the last 90 days and run a promotion to encourage them to make a repeat purchase. Create a segment of shoppers who have only purchased in a store and run a promotion to get them to buy online. And if you’ve sent a person a promotion via email, you can ensure that the right promotion is displayed on your website to that same person so there’s no confusion. You could use machine-learning algorithms to pick the best promotion to deliver to each person.

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More Is Not Better: How to Effectively Target Retail Promotions Image credit: Thomas Barwick | Getty Images

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Are there any retailers where you shop regularly, but never pay full price? For example, there’s a home goods store that my wife and I visit every few months. Even though we’re loyal customers, we still check to make sure we have a coupon before heading to the store. The retailer sends us coupons all the time, so it would be crazy to buy anything without using one.

This is a common practice among U.S. retailers. They send out daily coupon codes or weekly promotions in the mail and through email. Sometimes these promotions can be for as much as 40 or 50 percent off the entire store. And as savvy consumers, we’ve all learned to wait for those coupons before we buy.

These promotions certainly drive purchases, otherwise retailers wouldn’t send them. But retailers that operate like this have found themselves stuck in a vicious cycle. Customers have learned to wait for a coupon to make their purchases, so retailers need to send more coupons to drive the same sales. But, of course, they’re leaving money on the table through their frequent discounting. What can they do?

Rely on segmentation to deliver more targeted promotions.

There’s nothing wrong with running regular promotions to drive purchases. The problem is that these coupons are often sent indiscriminately to everyone in the retailer’s database. While each coupon drives a lot of sales, there are unintended consequences. Shoppers that would have been willing to pay full price can access and use the coupon, so the retailer loses money on each of those transactions. Also, shoppers who are only interested in buying once in a while can become overwhelmed with the volume of coupons sent to them via email and unsubscribe — so the retailer loses future revenue from those shoppers.

To avoid these pitfalls, retailers should aim to send promotions only to shoppers that…

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