This edition of We Test Everything highlights the art and science of discounting. While discounts are long-proven sales generators, they are not a set-it-and-forget-it tactic.
Discounts require constant monitoring and attention to detail. They also require regular refreshing to instill in customers and prospects the proverbial fear of missing out, or FOMO.
“Customers must believe the discount offer won’t last long and won’t always be available,” says Allan Levy, CEO of Alchemy Worx.
Anniversaries, customer birthdays, holiday discounts, lapsed customer offers and prospecting offers are common examples of discounts that create a sense of urgency.
“And even with the elements of urgency and rarity in place, the increased revenue that discounts drive may not be worth the hit to the margins,” says Levy. “How customers and prospects respond to discounts is often tied to their perception of the brand. The only way to tell is to test.”
Alchemy Worx ran two A/B split tests on behalf of foot-care-products merchant Dr. Scholl’s, pitting 15 percent discounts against no discounts.
In one test, the no-offer emails drove 22 percent fewer clicks than 15 percent off, yet drove 123 percent more revenue due to a higher conversion rate.
In the other test, no discount again drove fewer clicks yet 18 percent more revenue due to a higher conversion rate.
Both tests were sent to buyers and both indicated the increases in overall revenue were not worth the reduced margins.
“The question was if we send discounts to buyers, will they be more likely to buy again? And will they spend enough to make the discounts at least pay for themselves?” says Levy. “The answers in these two tests were ‘no’, but that doesn’t mean this holds true for non-buyers. Or even buyers over time.”
Discounting’s effects are fluid depending on a slew of factors, so if they are to be implemented, regular testing is a must.
“You want to know if things have changed,” says Levy. “A changing economy, for example, can impact the effectiveness of discounts. The product mix will impact them. Whether it’s out of stock on Amazon will impact them. You may even consider testing greater discounts if your margins and relationships with resellers and affiliates allow it.”
At Alchemy Worx, we test everything. You should, too. For more information on how to partner with Alchemy Worx, contact us.
