Are all eCommerce promotion ideas bad? Not necessarily. Read on to find out how to run eCommerce promotions that drive short term and long term benefit.
This content was originally published in the No Best Practices newsletter on 03.12.2023.
I posted this poll about eCommerce promotions on Twitter a few weeks ago. Only 20% of you said that you’d do the promo. And that means 40% of you are lying.
Go visit 10 random eCommerce sites. Make note of the content on each email capture popup–how many brands are offering “X% off!” to sign up? And how many are actually selling you on the email list? “Get the latest updates” is not a strong sales pitch, so that doesn’t count.
This poll is exaggerated, but it represents a choice that most brands are eventually forced to make. Because eventually you run face first into a local maximum.
You consolidate your Facebook campaigns. You A/B test your landing pages. You test your way to amazing creative performance. And then you get stuck on a plateau, and none of it helps you break free.
At this point, you have two options for growth: you can deep dive into traditional marketing to reach new markets. Or you can start leveraging eCommerce promotion ideas to unlock untapped demand. (There is actually a third option–merchandising strategy–but that’s out of scope this week).
In the hypothetical world, most of you would answer “Option 1” (marketing fundamentals). That’s reflected in the results of the poll. But in the real world, things are different.
In the real world, you’re under time pressure. The reality of the local maximum sinks in after two to four months of testing. You’re almost halfway through the year, inventory is backing up, and you’re slipping behind your sales plan.
In the real world, you don’t have the internal capabilities to do market research. And why would you; it’s something you only need once every few years. So you either make a new full time hire (time consuming, risky), or find someone who provides customer research as a service (typically expensive if done well–that $45K price tag is not a lark).
Returning to the poll–what if you discounted each answer by the probability it would work, and by the time it would take to realize the benefits?
This is where eCommerce promotion ideas become infinitely more appealing: you know it will work, especially if you’ve never done it before. And you will realize the benefits the minute you publicize the promotion.
The marketing deep dive is a lot riskier–you have to hope that your marketing consultant (or internal team) is effective. You have to wait on the research process. And then you have to act on the findings, and your decision could be wrong!
The promo option doesn’t seem so bad now, does it? There is only one problem–it’s a “mature brand” strategy. If you’re hoping to sell to a strategic investor (and not a special situations investor), you need to leave the promo genie in the bottle.
Now that I’ve forced you to empathize with the marketing teams blasting your inbox three times a day with “UP TO 70% OFF”, here is my POV on how to use promotions the right way.
Thoughtful eCommerce Promotion Ideas
There are four reasons for using eCommerce promotion ideas like promo codes, markdowns, or other forms of discounting:
- To accelerate inventory sell-through because you need cash (the “end of season sale”).
- To pull demand forward, because you need more dollars in the door on a specific day.
- To make your acquisition economics more favorable.
- To incentivize LTV-enhancing behavior.
Reason 1 is symptomatic of bigger issues. A healthy business does not have to clear out inventory at ~up to 80% off~ multiple times per year. Reason 2 isn’t necessarily bad, but you should ask yourself why the business is in that situation.
Reason 3 can be a real problem. Your new customer offers should help to increase customer lifetime value, not degrade it. A free shipping threshold or bundle can help increase LTV and CAC:AOV ratio at the same time. A permanent “20% off your first purchase” offer just makes it harder to sell anything at full price, or use discounts effectively for any other reason.
Reason 4 is where you ask yourself “what kind of customers do I want to retain?” and send offers to those customers in an attempt to drive incremental sales and conversions. For example, targeting the top 20% of your new customers by AOV and sending them a “bounce back” promo a few weeks after their first purchase.
TL;DR, you can use promotions to optimize for short term or long term value. If you find yourself constantly optimizing for short term value, you may have a bigger problem.
Build An “eCommerce Promotion Ladder” & Stick To It
So, what is a “promo ladder”? It is a framework for aligning the depth of a promo with the value of the outcome. As customers make more and more purchases with you, they become less likely to lapse. Once they reach the 3rd to 5th purchase, they actually become more likely to repeat purchase vs churn.
But the high probability of purchasing and increased purchase frequency make it harder to make loyal customers spend more. It’s the “diminishing returns” problem–these customers are already at 80% of their LTV potential. Capturing the remaining 20% takes a lot of work.
Using this lens, you should be giving fewer promotions to your loyal customers, unless you can develop a scheme where promotions will increase their switching costs.
There are two big bottlenecks to loyalty (and LTV): turning a prospect into a customer, and turning a 1x buyer into a 2x buyer. 1x buyer retention rates for a mono-brand DTC business usually top out around 30-35%. This is where you can really change behavior and influence your average LTV.
You may be asking yourself “Why not simply offer x% off sitewide? It sure works well during holiday”. This is applying a sledgehammer when a scalpel is required. Why pay extra for any customer when you could design a first purchase offer to attract specific, high value customers?
This is where merchandising and marketing intersect. Your best customers probably enter the brand via specific categories in your assortment, purchased in specific combinations. Offer a promo on those baskets only. Or develop a promo that encourages the average customer to drift towards that behavior.
An “x% off sitewide” promo says “we value all paths to entry equally”, when that just isn’t true. And it trains all customers to expect at least an x% promo for the duration of their time with you. This makes it harder to influence behavior down the line.
Of course, if your POV is that “a dollar is a dollar”, then none of this matters. And for young, bootstrapped brands, maybe 12 month LTV doesn’t matter. But, as I mentioned earlier, if you want to sell your brand, you need to cultivate an asset. An asset has semi-predictable future returns. And a business that depends on promos to grow is a ticking time bomb; it’s a strategy that works until it doesn’t.
Build Your Marketing Stack (So You Need Fewer eCommerce Promotions)
The 90s and pre-recession 2000’s were a bonanza of free retail foot traffic, and the 2010’s were a bonanza of low-cost internet traffic. Unfortunately, many marketers who started their careers during this time never actually learned…marketing.
I’ve been a member of too many “marketing” organizations who couldn’t define the brand’s actual customer or the things that customer valued. Marketers, especially DTC marketers, have zoomed in on channels and forgotten about strategy. And don’t get me started on apps…
So, in honor of the appbois, here is the ~killer marketing stack~ I use to avoid running excessive promos:
Customer Forecasting: A great way to avoid promotions? Have the right inventory at the appropriate levels. Traditional forecasting tells you how much stock you’ll need to hit sales target. Customer Forecasting tells you how much of those sales will come from acquisition or retention. I wrote more about it here.
Product Reviews: You should be collecting reviews. Reviews are the “passive income” of customer research. Snoop the reviews of your competitors’ products to see what they’re lacking. Mine your own reviews for common pain points, or things that folks love about your products. Incorporate this into your marketing.
Customer Interviews: Talk to your customers, but do it strategically. Pick something you want to improve. Develop a few hypotheses around it using review mining and surveys. And then guide the conversation around that topic, but also give it room to wander.
Product Positioning: I like to plot the major brands in the market on two axes that represent two crucial values for the consumers in that market. Kind of like this. If you’re starting a brand from scratch, the whitespace on your plot may represent whitespace in the market. If you’re working with an existing brand, consider how you might intensify or broaden your positioning.
Direct Response Copywriting: Wayyyy too many resources on this to list. But your copy should reach out and grab your target customer. They should feel it in their soul. And when you write your own copy, it should get you feeling fired up, even if you’re not in the target market.