Everyone loves a good deal, and almost nothing makes a customer happier than receiving an irresistible coupon code. Discount codes are great for attracting new customers and building customer loyalty; however, since it's crucial to maintain profitability, the goal should not only be to trigger one-time sales, but also to foster long-term customer engagement and loyalty.
Especially during economic downturns, brands face increased pressure to optimize their resources. As consumers become more price-sensitive, you must find effective ways to attract and retain customers while ensuring profitability. The strategic selection and tracking of coupon codes plays a significant role in driving sales and fostering customer loyalty, aiding in navigating economic uncertainty.
Analyze Your Coupon Codes
How do you know which coupon codes work best? Are the most effective codes the ones with the highest redemption rates?
RetentionX provides insight on the effectiveness of your coupon codes by monitoring the impact of various coupon codes on the following two KPIs:
- The average LTV of customers that redeemed a coupon. This metric is impacted by the gross margin of each purchase, and the number of orders placed by customers. If the usage of a coupon code results in customers exhibiting a higher LTV in comparison to those who do not use the code, it serves as a positive indication that the discount is effectively fulfilling its intended purpose by attracting the desired and valuable customers.
- Follow-up Orders, showing on average how often customers buy again after redeeming the coupon. If customers who utilize a coupon code show a higher probability of making future purchases in contrast to those who do not use the code, it serves as a clear indication that the discount is successfully encouraging repeat business and fostering customer loyalty.
While analyzing your discounts always keep in mind, that's not just about generating sales but also maintaining a healthy gross margin. For instance, a 10% coupon code might yield a lower retention rate compared to a 20% one, but it could also lead to a better gross profit margin. While the 20% voucher may drive more repeat purchases, it could be cutting deeper into your margins, thus reducing the LTV.
Find all metrics needed to understand your coupon codes' return on investment in the Best Coupon Codes report:
Best Practices
Use the insights from RetentionX to find the optimal discount level that maximizes both retention and profitability. This could mean testing various types of voucher codes, tracking their performance, and iteratively adjusting your strategy. Ultimately, only promote discount codes that lead to high repeat purchase rates, and refrain from promoting codes that only trigger one discounted purchase, as they don't add sustainable value to your brand.
Please keep this in mind as you refine your strategy:
-
Type of discount: Different types of discounts, such as percentage off, dollar off, and free shipping, may have different effects on customer behavior. Analyze the impact of each type of discount on LTV and follow-up orders to determine which is the most effective for your brand.
-
Discount amount: The amount of the discount can also impact its effectiveness. Offering too large of a discount may lead to lower profits, while a discount that is too small may not be compelling enough to drive sales. Monitor the impact of different discount amounts on LTV and follow-up orders to determine the optimal discount amount for your brand.
-
Customer segment: Different customer segments may respond differently to discounts. For example, loyal customers may be more likely to respond to a discount that rewards their loyalty, while new customers may be more likely to respond to a discount that incentivizes their first purchase. Consider segmenting your customers and analyzing the impact of discounts on LTV and follow-up orders for each segment.
-
Timing: The timing of your discount code can also impact its effectiveness. For example, offering a discount during a slow sales period may be more effective at driving sales compared to offering the same discount during a busy season. Also, never offer coupon codes to customers if there is a possibility that they will make a purchase without any discount.
-
Ad copy: Reflect your key insights in your ad copy to create a compelling and effective message. Tailor your promotions to better resonate with your target audience and maximize the impact of your marketing efforts. For example, if percentage-off coupons have proven effective, highlight this in your ads: "Enjoy 20% off your next purchase!"
- Influencer marketing: Collaborate with influencers and provide them with your best coupon codes to leverage their reach and influence to attract new customers, drive sales, and establish your brand as a relevant and trustworthy choice in the market. It is also crucial to choose influencers whose values align with your brand and target audience to ensure a successful and authentic partnership.
But let's have a look at a few examples:
-
Percentage vs Absolute Value Off: Your RetentionX insights may reveal whether percentage-based discounts or absolute value discounts drive more customer engagement and repeat purchases. It's crucial to factor in not only customer preference but also your gross margin. For example, a $10 off coupon might be less enticing than a 20% off coupon, but if the average order value is above $50, the absolute value coupon would lead to a higher gross margin.
-
Free Shipping: If RetentionX insights detect that free shipping codes contribute to a higher LTV and follow-up orders, it might be worth offering these more frequently. However, consider your shipping costs. If the increase in customer retention does not offset these costs, such a voucher might not be profitable in the long run.
-
Minimum Purchase Required: Consider coupon codes that require a minimum purchase amount to be redeemed. These can encourage larger purchases, which can increase your gross profit even with the discount. Analyze whether such codes result in a higher average order value and how they impact LTV.
- Product-Specific Discounts: If some coupon codes are tied to specific products, check the profitability of these products. If they have high profit margins, even a substantial discount might not have a significant impact on your overall gross margin, and they could serve as effective loss leaders, attracting customers who make additional profitable purchases.
While the analysis of individual coupon types provides valuable insights, it's essential to consider how these different coupon codes work together. The ultimate goal should be to have a mix of coupon codes types that cater to different customer preferences and shopping behaviors while optimizing your overall LTV and gross margin.
Checklist: Choosing the Right Coupon
You're in the process of setting up your coupon code strategy and need some inspiration? Read more about the different types of coupon codes and their benefits below:
1. Percentage Off
A discount code that offers a percentage off the total purchase amount. For example, a discount code offering 20% off the total purchase.
✔️ Offers customers a clear and straightforward savings opportunity, making it easy for them to understand the value of the discount.
✔️ Works well for customers who are purchasing multiple items or making a large purchase.
2. Dollar Off
A discount code that offers a fixed dollar amount off the total purchase amount. For example, a discount code offering $10 off the total purchase.
✔️ Offers customers a clear and straightforward savings opportunity, making it easy for them to understand the value of the discount.
✔️ Works well for customers who are making a smaller purchase or only purchasing one item.
3. Free Shipping
A discount code that offers free shipping on the customer's order.
✔️ Can be a powerful incentive for customers who are on the fence about making a purchase.
✔️ Can also be an effective way to drive sales for customers who live in areas with high shipping costs.
4. Newsletter Subscription Discount
A discount code offered for signing up to the newsletter list.
✔️ Works well for new customers who are new to your brand and products.
✔️ Powerful tool to build an email list and gather email addresses.
5. Abandoned Cart Coupons
A discount code offered for abandoning shoppers.
✔️ Brings back customers who leave their carts without making a purchase is to entice.
✔️ Discount value doesn't have to be high to set an incentive.
6. Buy 1 Get 1 Free
Also called BOGO offers are discount codes that offer a free item when the customer purchases one item.
✔️ Can be a powerful incentive for customers who are interested in purchasing multiple items.
✔️ Works well for customers who are price sensitive and are looking for the best value.
7. Limited Time Offer
A discount code that is only available for a limited time period.
✔️ Creates a sense of urgency, motivating customers to make a purchase before the discount code expires.
✔️ Can also drive increased sales during slow periods.
8. Loyalty Rewards
Reward your loyal customers with redeemable points on each purchase.
✔️ Encourages repeat business and helps to build customer loyalty.
✔️ Works well for customers who are already loyal to the brand and are looking for ways to save on future purchases.
Not using RetentionX yet?
Comments
0 comments
Please sign in to leave a comment.