Power Business Building: Breaking Away from Discount Marketing

Successfully building a business requires resources. Companies with limited funds and staffing find generating consistent growth challenging. The ability to market products and services is hampered by lack of resources. Less marketing creates fewer sales, which in turn trigger the knee jerk reaction of deep discount marketing for cash flow. The discounts reduce profitability and limit resources available for the next stage. It’s a vicious cycle that has to be broken for long-term business success.

Breaking out of that cycle requires a plan that uses available resources to generate the best possible return. Discount marketing has become the go-to tactic for most companies because it works so well. We are often asked to help clients analyze which discount works the best instead of challenged to find the best marketing strategy for the business. One such request found some surprising results.

The question asked was, “What discount should we offer our customers to deliver the best results?” After some discussion with the client, we decided that a better question is, “What is the best way to generate cash flow and profits?” We proceeded to plan tests to find the answer.

The client is a multichannel retail company in a niche market. Prior to the challenge, marketing consisted of catalog mailings ten times per year, Google Ads, monthly postcards, and weekly emails. We used the postcards and emails for our tests. The results were similar.

We wanted to test pricing against personalized messages. We choose five pricing variables: 15%, 20%, 25%, $5 off $25, and free shipping on orders of $50 or more. Here are the results from the email test:

The test showed that 20% off any order was the best result because it was the most profitable. The response rate was lower than the 25% off offer and gross margin was lower than the free shipping promotion but the overall contribution to the bottom line was much better.

On the personalized side, we also wanted to know if there was a difference between categories. The marketing messages targeted people who purchased items from the top four bestselling categories. The personalization mentioned that the recipient had previously purchased similar items and focused on new arrivals. Here are the results:

The bestselling category delivered the best results. This isn’t surprising because of the popularity of the items. What surprised the client is how much better the personalized messages performed in every way over the discount ones. The worst performing category delivered more than the best discount offer. The takeaway for the client was to improve marketing with better targeting.

Eliminating discount marketing completely is not prudent. There are times when discounted messages work well. The best marketing strategies include a mix of personalized and discount messages. Your challenge is to find the mix that works best for your customers and company. If discount marketing is your strategy, here are some tips for breaking the cycle:

Don’t go cold turkey – Your customers have been trained to expect discounts. Completely eliminating them will have a negative effect on your cash flow.

Test first – Segment your customer file and cycle targeted messages to find what works best. There is a side benefit to this process; it starts the retraining process.

Get creative – Find your customers’ pain points and ways to relieve the pain. Doing this encourages customer loyalty and reduces the need for discounts.

Think “easy” – The easier you make things for your customers, the greater their responsiveness and loyalty. Making it easy can also reduce operational costs so it is a classic win-win situation.

Measure well – The metrics that really matter are profitability and satisfaction. If your marketing isn’t improving the bottom line and keeping customers coming back, is it really working?

For information on improving your marketing strategy email Debra at dellis@wilsonellisconsulting.com.