Black Friday and Cyber Monday have become synonymous with huge markdowns and, sometimes, below-cost prices. In fact, the entire holiday season creates a retail environment where discounts drive demand.
So what can you do to make some noise, but not give away the farm? Here are four promotions that will protect your bottom line while catering to sales-hungry shoppers.
1. Conditional Promotions
This is an oldie but goodie. Make the customer reach a certain cart total to receive a discount. Whether it’s free shipping, 20% off or some sort of free gift, your offer rewards the customer for driving up his or her order value.
If you’d like to put a new spin on an old classic, instead of choosing an arbitrary cart total that fits your entire customer base, break your customers into segments and send each segment an offer they can’t refuse.
For example, segment your customers based on past average order values and give each segment a different threshold. (Customers with a lower average order value receive a lower target, while customers with a higher average order value receive a higher target.)
As a result, members of the email list you’ve been carefully building all year long would receive an offer for $10 off on orders over $50, $20 off over $100 orders, or $30 off over $150 orders, depending on how much they’ve spent on previous purchases. This maintains a 20% discount for you, but pushes each customer just a little bit beyond what he or she would normally spend.
Of course, this doesn’t work in every industry; in some cases, previous order size may not be a good indicator of future order size. But for the industries it does work well in, this promotion gives a little extra juice to a classic promotion.
2. Ask For A Referral
The holidays cause such frenzy for customer acquisition and new orders that we sometimes forget to follow up with shoppers after we’ve won them over. Asking for a referral immediately following the receipt of an order is a favorable way to leverage conversions for additional sales.
To increase the effectiveness of your referral program, experiment with offers for both the referrer and the referee. The holiday order surge is a great time to cater to both groups. Holiday customer acquisition is notorious for drawing one-time shoppers, but store credit can create an opportunity for repeat business once the busy season comes to an end.
3. Bundle Discounts
Another smart way to push up average order values in the holiday season is with bundles. This is especially popular in electronics when the primary item has a very poor margin. When an item is bundled with more profitable accessories, the retailer enjoys better margins on the sale.
Have your merchandisers bundle products that make sense together and give customers a nice discount in exchange for buying in bulk. This will help push up average order volume and give you a nice percentage-off deal to draw in shoppers.
4. Gift Card Discounts
Gift cards present a few huge advantages in the holiday season:
They provide an easy solution for the indecisive gifter.
They can be delivered instantly for late shoppers.
They almost always work out in the retailer’s favor.
Obviously, gift cards eliminate much of the guesswork involved in gift giving and make the shopping experience more pleasant for shoppers. But the advantages for retailers do not stop there.
Most retailers look for ways to extend the holiday season as late as humanly possible, and eventually face limitations on delivering a physical product in time for the big day. When you get late in the season, pushing digital gift cards is a good way to continue momentum. Here are two ways to help close the deal on those last minute gift cards:
A. Give A Percentage Off The Price Of The Gift Card
During the holiday gifting season, a lot of gift cards will go unredeemed and will help subsidize any discount given during this time. The redemption rates vary greatly by industry and retailer.
I would urge you to analyze your gift card program for its profitability; the Casualty Actuarial Society put out a pretty in-depth paper on the topic. Once you understand your redemption rates, you can start to assign profitability to your program, and you’ll know how aggressive you can be with discounts.
B. Add A Percentage To Your Gift Card’s Value
Typically adding a percentage is not as enticing as taking a percentage off, but this is an opportunity to make your gift cards appear more attractive while increasing your average order value. What is especially nice about adding value to a gift card is that the real discount works out to be a smaller percentage for the retailer.
Let’s take a $100 gift card. You give the customer $120 value (20% more value). The $20 that he or she received is actually only 16.6% of $120. So, in effect the discount was actually only 16.6%.
Even better, this scenario assumes the gift card is redeemed for exactly $120 and 100% of the time. As I mentioned earlier, gift cards are almost always a win for the retailer. Either a shopper will leave unused value on a card (free money!) or spend more than the card is worth during redemption (additional revenue!). Very rarely will a customer be able to spend exactly what he or she received as a gift.
Final Thoughts
The winter holidays might be the most competitive time of the year for retailers; but, they’re also a golden opportunity to drive sales and acquire new customers. Clever use of promotions and discounts is one of the best ways to ensure you make the most of the holiday season and stretch your success into the New Year.
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