Personalisation: the key to profitable discount codes

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Produced in association with Fospha.

In our recent articles Discount codes: 5 ways retailers can handle their deal addiction and Data-driven attribution: the cure for discount code abuse?, we discussed how to run profitable discount strategies – highlighting the necessity to understand your customers in granular detail.

In this article, we look at how to use that understanding to tailor discounts to specific customer segments, reducing the cost of customer acquisition and ultimately optimising conversion in the user journey.

It’s all in the details

The more granular you can get with targeting, the more profitable your discount code strategy will be. When, due to lack of data or operational constraints, you treat your customers in broad tranches, you lose cost efficiency.

The effect on short-term top-line revenues will look great, but this will have a negative effect on overall revenue as it ‘cannibalises’ the income from full-price sales. A highly granular view means you can see the exact customers and points in their journey where a discount code genuinely increases conversion.

Discover new ways to segment your customers

You’re probably used to segmenting your customers by ‘new’, ‘current’ and ‘lapsed’ – but what about by maximisers vs satisficers? Or by discovery vs intent? One international ecommerce company gave us carte blanche to deep-dive their business in search of the most interesting customer segments they didn’t know about.

We found one of the biggest differentiators in customer behaviour was whether or not customers travelled in the course of a day (defined as two visits or more from different locations).

Travellers converted around 50% more than stationary shoppers (defined as two visits or more from the same location). Until then, no one had considered the business in this way.

There are still open questions as to why conversion is so much higher on the second visit from travelling rather than stationary shoppers. But the outcome was that the latter became much clearer targets for discount code targeting, where added incentive could help boost an underperforming user segment.

Do the maths

Consider the value for each granular customer segment in the context of the following sum for a given time period:

Gross profit = Number of purchasers x Purchase Frequency x Average Order Value x Margin

For example, with a new customer acquisition discount code drive, the drop in average order value and margin should be outweighed by the increase in new customers.

Similarly, there may be customer segments who are less price sensitive, where discount codes can be used as a way of pushing higher priced inventory and increasing average order value.

Understand where in the journey to offer incentives

A discount advertised across the web and on your home page will have biggest short term impact, but if the code played an unimportant role in the conversion, it will have the biggest negative impact on full-price purchases.

However, strategic placement at a particularly troublesome point in the journey where you’re losing the most customers, can be a highly effective way of converting them.

Embrace automation

Assuming there is an appetite in your business to reduce the cost of discount codes through more effective targeting, you now need to confront the reality that no amount of segmentation will deliver the short term top line revenues that a broad discount available to all will.

In order to get close to those top line expectations and make your discounts significantly more profitable, look into the operationalisation. Real time intent triggers tailored to deliver the right discount to the right customer at the right time are now a reality.

So too are tools that allow you to build custom clusters of email-able customers that plug into your email marketing tools. Embracing the technology here will help you significantly improve your discount code strategy, reducing cost of customer acquisition, maximising lifetime value and providing a coherent user experience for your customers.

Keep an eye out for our discount code webinar on 20th February 2017, brought to you in collaboration with customer journey experts Fospha.

To find out more about upcoming webinars, whitepapers and more, visit their website.

This content has been produced in association with Fospha. Click here to read our collaborative content guidelines. Views and opinions expressed in this article do not necessarily reflect those of ClickZ’s.

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