The Importance of Promotional Offers

According to the CFI Group's Retail Satisfaction Barometer for this year's second quarter, 77 percent of consumers said shipping costs factor into their willingness to shop online. This certainly reinforces the importance of "free" or "flat" shipping offers during the busy holiday season.

Shipping offers are a big deal to consumers shopping for holiday gifts. The decision-making process is greatly influenced by such offers. They can mean the difference between getting or not getting an order. Consumers actually look for sites that offer free shipping. The bottom line is consumers don't like to pay shipping and handling fees.

Promotional offers are used to motivate consumers to buy. They help prospects overcome any resistance to purchasing your product or service. An offer can encourage a buyer to order more of a given item (or items). Offers are used effectively to increase sales, but they need to be used correctly and viewed as a selling expense.

In order of effectiveness, the most common offers are as follows:

• free (or "flat") shipping;
• a dollar amount off (can be a tiered amount off);
• a percentage off; and
• free gift with purchase.

A free shipping offer will typically increase the revenue per catalog (RPC) by 20 percent or more based on years of testing we've done at Lett Direct. Obviously, there's a cost associated with free shipping and not all catalogers can afford to make this offer. If you've used a free shipping offer in the past and it didn't prove profitable, I suggest you test "flat" shipping (e.g., $2.95, $3.95 or even $4.95 per order) as an alternative.

If you want to maximize response rate, be careful not to set the dollar minimum to qualify for the shipping offer too high. For example, if your average order is $75, it means that approximately 80 percent of your orders fall below that threshold while 20 percent are above it. Setting the threshold at $99 or even at $75 means only a small percentage of buyers are going to be attracted to the offer.

Let more buyers qualify! Consider testing NO dollar minimum. This will encourage more people to order. From the testing I've done, not having an order minimum (preferred) will increase the response rate and average order size. Customers who often spend more than the order minimum will lower their spending to hit the minimum if there is one.

10 Rules When Using Offers

1. Know why you're making the offer. Use offers strategically.
2. Prepare a pro-forma; do your financial analysis.
3. Test the offer against another offer.
4. Don't overtest offers within a drop.
5. Don't make the offer during peak season (if you don't need to).
6. Don't overuse an offer. Retest against a control or another offer.
7. Know what your competition is doing. You might have to use offers just to stay competitive.
8. Make sure your sample size gives you statistically valid results.
9. Expect some decline in the impact of the offer over the control if the offer is repeated.
10. Analyze the results and act on what you see!

Over 50 percent of all catalogs offer some type of promotion. A large percentage of these offers are free shipping. Promos have become a regular part of doing business and something the consumer expects.