A primer for determining if a customer incentive is truly adding value to your business.
We are in the most competitive sales environment in the history of commerce. Thanks to many more channels in which consumers can shop - and social media tools in which they can share reviews with their peers - your customers are probably buying products from many brands besides your own. According to our new research, a retailer's most loyal customers (the ones who visit at least nine times a year) spend $1.44 with competitors for every $1 spent with them.
In response to this highly competitive environment, retailers are turning to new and innovative ways to gain a greater share of shopper wallets. With advances in "big data" solutions, there are new and powerful ways to gain insights into all the shoppers that matter for your business. Marketers are no longer restricted to targeting consumers in their loyalty programs. They can now tap into marketing solutions that allow a marketer to go after a broader base of customers and still deliver the right incentive to get shoppers in the door and buy more.
However, no matter the newness of the marketing innovations that brands bring to their customers, some time-tested rules apply for gauging the effectiveness of marketing programs. Here's a primer for determining if a customer incentive is truly adding value to your business.
Valid test and control. The correct way to test the performance of marketing incentives is to use two identically matched groups of consumers, whose responses are tested during identical timeframes. The problem is that some vendors of marketing incentives will test the behavior of the same group of consumers before they receive an incentive, and then test them after to monitor response.
Monitoring consumer behavior before and after they respond to an incentive - known as pre- and post-testing - adds variables to the scenario that can alter the results. For instance, the post-testing group might be exposed to different marketing efforts that can sway their actions. To digest the most accurate data on the impact of an incentive, you should insist on industry-accepted, standard methodology for test and control.
Driving the unplanned customer visit. The ability to get customers to come into your store is what marks the success of a merchant incentive program - and your ability to grab the most share of customer wallet. The conventional wisdom is that incentives with long redemption windows perform better because they give customers more time to take advantage of the deal. However, this means you'll probably be subsidizing the visits from customers who would have already planned to visit your stores. In other words, you won't be encouraging them to make an unplanned visit, with the resulting incremental sales.
When an incentive has a shortened redemption period, such as seven days, it's far easier to gauge the success of the incentive in pulling in shoppers. Our data shows that a seven-day redemption window ensures that there is less than a 5 percent chance of incidental redemption.
To make sure you're bringing in incremental sales, not paying for incidental customer visits, keep offers to a seven-day window. The shorter timeframe should motivate additional sales.
Generating positive return. You need to determine return on advertising spend (ROAS), but one vendor's math can be very different from another's. In the end, you only want to pay for actual performance - and careful testing can isolate the benefits that you want to measure. Clearly define the success metrics before starting the test. Then make sure there is a valid measurement system in place for reporting variables for the ROAS calculation.
Delivering sales at scale. To get real benefits from a marketing incentive, you need broad reach, and an incentive that changes behavior. It's the recipe for success: strong redemption and extensive reach. However, many incentives have limited effectiveness, either because they don't have meaningful reach or they just don't really motivate consumers to act. Therefore, when considering marketing incentives, you should ask whether the program can truly impact your business, and you should ask to see the math.
Brand-enhancing - or brand-denigrating. Coupons and discounts can erode brand equity over time, since they train a consumer to believe your product is not worth the regular price. In fact, they transmit the message that the product isn't worth the asking price even if they don't take advantage of the offer. Ask yourself if you really need another coupon program, especially if it's unlikely to have a meaningful impact on sales.
Customer-friendly. When an incentive is hard to redeem, customers are not inclined to do the work required to get the deal. Likewise for incentives with restrictions about what they need to buy, or how much they need to spend, in order to save money. When evaluating incentives, consider how hard the shopper has to work to obtain or understand the value of what you're offering.
This simple guide should help you identify the best incentives for your business - the ones that will give you a greater share of shopper attention, and shift share from the competition.
CMO Test image on home page via Shutterstock.
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Jim Taschetta has 25 years of leadership experience across a name-brand selection of blue-chip companies and start-ups. Jim previously served as the CMO of Bare Escentuals, FRS Healthy Energy, and Yodlee.com. Additionally, he served in various executive positions leading brand management and marketing at Procter & Gamble, Coca-Cola, and Visa. Jim has extensive international experience, having spent seven years living and working in Latin America while at Procter & Gamble.
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