How to Make Promotional Offers Work

Free Shipping! 50% Off! Free Gift with Order. These are all common catalog offers that inspire customers to order. Obviously, promotional offers work. They boost orders and gross revenue. But which offers work best, and when and how can you use them most effectively? Should you make the same offers to both customers and prospects?

To be effective, you need to know what to avoid when making promotional offers.

Avoid Conditioning

First, don’t condition your customers to look for offers every time they buy. Over-promoting an offer may result in a decline in your response rates. Also be careful how you use order minimums; they can work against you.

Some catalogers, for example, offer free shipping twice a year to prospects and customers. Often, a housefile starts to hold off ordering from regular mailings because they know a free shipping offer will come around soon. This can have a negative effect on all drops. The more offers are used, the less impact they have.

There’s no real call to action, since offers (e.g., free shipping) become run of the mill. Buyers are smart. Your housefile and prospects know there will be another offer again soon, so they may wait to buy.

Making an offer — such as $20 off an order of $50 or more to your best customers during your best season — most likely will increase your revenue per catalog. But there’s a trade off. It can cheapen your catalog and give away profits by more than the resulting increase in revenue and gross margin. For example, customers who normally spend more than $100 per order actually may lower their spending to hit the $50 minimum.

To avoid conditioning, limit offers to prospects, catalog requesters, reactivation groups, bounce backs and end-of-season groups. If the offer appears event-driven or action-based, there’s less expectation that the offer will be made repeatedly. And be careful when making offers to your best customers. Don’t give away more than you need to.

Free S&H

Consumers say that having to pay shipping and handling (S&H) fees is one of the major reasons they dislike buying by mail, according to numerous surveys. No surprise, then, that free shipping is a strong — if not the strongest — offer you can make. My colleagues and I have conducted many A/B split tests, i.e., free shipping vs. no offer (the control), and we see a lift in response every time.

In the testing we’ve done, a free- shipping offer consistently boosts the revenue per catalog (RPC) by 25 percent to 30 percent. The chart “Promotional Offers: Free Shipping vs. Control” shows actual results from a recent test designed to reactivate previous customers.

The test group, which received the free shipping offer, generated 25 percent more revenue than the control, which had no offer. The RPC also increased 25 percent, from $1.29 to $1.61. The offer increased the average order value (AOV) about 11 percent, with a 13 percent increase in the response rate.

There was no minimum spending level attached to this offer. The offer resulted in more people ordering — and those customers spent more.

Other Tempting Offers

What other effective offers can you make to customers and prospects? Here are a few to try:
- a dollar amount off an order;
- a fixed percentage off an order;
- a free gift with order; or
- a graduated offer (i.e., the more you buy, the greater the savings).

From my experience, a dollar amount off an order generally will outpull a percentage off an order. A free gift with order normally is the least-effective offer you can make. This isn’t to imply that an offer for a free gift with purchase doesn’t work at all. If you test a free gift, however, be sure the gift isn’t an item in your catalog but something totally different. Test different offers to see what works best. Bear in mind there needs to be a purpose and objective behind every offer you make. For example, do you want to increase your AOV or response rates? Don’t make unilateral offers to all customer groups and prospects. Rather, target certain groups.

In general, offers can be used effectively to:
- reactivate previous buyers;
- convert buyers (one-time purchasers) into customers (multibuyers);
- convert prospects to buyers; and
- convert inquiries to buyers.

Notice I haven’t included the core RFM (recency, frequency monetary) housefile segments, such as zero-to-12-month buyers, in our list. A large percentage of this group will purchase regardless. Yes, an offer will cause the response rate and/or AOV to increase, but you’ll end up giving away profit dollars to the largest percentage of your customer file: those who would’ve made a purchase with or without the offer. The incremental dollar increase as a result of the offer won’t be enough to offset the cost of the offer to your best customers.

Offers to prospects should be designed to increase the rate of response to grow your buyer file. But which is better: to have an order that increases your overall AOV or one that increases your response rates? Building your housefile and moving buyers into the most recent RFM cells is critical to the success of a catalog. Response rates are key.

For example, in the chart “Response Rate vs. Average Order” the results shown are identical in terms of the revenue and RPC. But the response rates and AOVs vary. From an operational viewpoint, you might say it’s better to have fewer orders and the same dollars. But from a marketing standpoint, the higher response rate is preferred because of file growth.

Common Rules for Testing Promotional Offers

1. Always have a control. Generally, it’s a “no-offer” version, but it doesn’t have to be. A control could be another offer. For example, if you’ve frequently used a free shipping offer, use this as the control to test other offers against.

2. Test only one variable at a time.

3. Select a cross-section of any list for both the control and test groups. Test panels must be selected the same way.

4. Mail dates must be the same for all panels.

5. Be careful when using dollar minimums to qualify the offer.

Conclusion

In summary, avoid conditioning your customers to expect an offer every time they buy. Guard against a decline in response rates from over-promoting an offer. And be careful how you use order minimums. Use offers carefully and have a purpose for every offer you make.

Stephen R. Lett is president of Lett Direct, a catalog consulting firm specializing in circulation planning, forecasting and analysis. He can be reached at (302) 541-0608 or via his Web site: www.lettdirect.com.