Managing Promotional Offers and Finding the Equilibrium

Since the recession, cross-channel retailers have come to rely more and more on promotional offers to drive sales. Catalog and internet buyers have come to expect strong promotional offers, seemingly waiting for them before making a purchase.

Managing promotional offers and making sure they're well balanced within your catalog circulation, emails and online ads is a critical part of getting your marketing mix right.

Do you need deeply discounted offers to get consumers to buy? Deep offers have two big negatives: First, you have the margin hit of giving deep discounts. Second, you train customers to wait because they know the deep discount is coming. One alternative is to wean your customers off of waiting for the big offer by giving them a series of much smaller discounts so that they learn to expect frequent but not such dramatic discounts.

Will consumers buy at full retail price? Not if you’ve trained them to expect discounts. I’m a loyal customer of Borders who now waits for a discount before purchasing. Why? Because I buy so frequently, there's always a discount coupon waiting for me in my inbox. Now that I’m a platinum member and get an extra 10 percent off, I'm torn about making a purchase at a regular bookstore. I’ve come to expect 40 percent off every purchase I make at Borders. I even buy the Sunday New York Times there to save $2.00. The upside to Borders is that I’m loyal to their discounted prices. Note that Borders did file for bankruptcy in February.

Can you send more frequent emails to buyers who have responded to them? One of the emerging trends is that marketers are segmenting out buyers who have responded to email offers to send them more frequent emails than the rest of their email file. You can greatly ramp up the frequency of emailing coupons and promotional codes to customers who have responded to them in the past — a discount buyer is a discount buyer. I’ve also noticed (going back to my Borders example) that as soon as I use a coupon from Borders that I get an immediate series of fresh coupons over the next week to two weeks.

Segment out responders to your promotional offers and hit them up frequently with more offers. Consider setting up a separate stream of emails to buyers right after they've made a purchase. It's an old truth in direct marketing that customers are happiest with you right after they've purchased. This is the best time to ask them to buy again.

Should each catalog have an offer? If you’ve trained your customers to expect frequent offers, response could suffer if you send them a catalog without an offer.

Do you run the same risk with behaviorally targeted ads? Probably much less so. These ads are targeting your website visitors, which is a mix of customers and prospects. The ads are being broadcast to a different segment of consumers. Test online ads with and without an offer.

What about giving offers to your entire email list? How can you limit the risk? One tactic is to send strong offers to customers who haven't made a purchase in over a year. These buyers are essentially dormant, so it can be worth your while to reactivate them using a strong email offer.

Here are some rules to consider to help manage your cross-channel promotional offers:

• Don’t favor one channel over another (e.g., stronger offers via email than in your catalog).
• Limit how deeply you discount. It’s better to run shallow discounts frequently than deeper discounts infrequently.
• Segment out those customers who have responded to your promotional offers. Consider increasing the frequency of offers to those buyers and sending fewer discounts to those buyers who have never used a promotional offer.
• Use promotional offers via email or catalog to reactivate customers who haven’t bought from you in a while.
• Know that when you send shopping cart abandonment emails that consumers are expecting a promotional offer.
• Test constantly. Test the difference between deep offers and smaller discounts for catalog, email and online ads.

If you're selling commodity-branded merchandise, know the street price of the items you're selling and be very careful about selling either above or below the established street price for an item. If your price is above, you won’t sell much. If your price is below the established market price, you may get pushback from your manufacturers.

Have a pricing and promotional strategy so you're not just reacting with discounts to make your monthly budgeted sales. Consider modeling your promotional buyers vs. your full-price buyers at the co-op databases to see if they're different types of customers.

Accept that promotions are increasingly a fact of life in retail. You may have to sell most or all of your merchandise using some promotional offer.

Jim Coogan is president of Catalog Marketing Economics, a consulting firm focused on catalog circulation planning. Reach Jim at (505) 986-9902 or jcoogan@earthlink.net.