5 Reasons Why Merchants Should Offer Discounts to Shoppers

by Greg Shepard on Jun 21, 2015 5:00:00 PM Digital Marketing, e-Commerce, Consumer Behavior

5_Reasons_Why_Merchants_Should_Offer_Discounts_to_Shoppers-919118-editedHey direct marketers and merchants. Stop. It’s not your problem. You can’t solve it. Many of you think the issue with coupons is your issue to solve in order to raise the average sale price. Stop, slow down, and look at one simple fact. More than 70 percent of the U.S. population will not buy your brand without a discount simply because they cannot afford to do so. 

First, you need to know the basics. Recent data from Shop.org finds that while free shipping, ease of website use, and a flexible return policy are important to shoppers; it’s low prices that are number one with shoppers. What’s more, according to a recent BIGinsight Consumer Survey, coupons best in-store promotions, word of mouth, online advertising, inserts, and offline advertising as the primary determining factor in deciding where to shop.

It all boils down to the fact that shoppers want a good deal. While free shipping and low prices factor in, coupon offers can really make a serious positive dent in a merchant's online profitability—especially to those who, without a discount, simply cannot afford to buy certain products.

What Merchants Who Do Not Offer Coupons Are Losing

While many merchants and marketers do offer coupons, there are a whole lot that don't. Why? The biggest misconception is that by not offering coupons, a merchant can keep average order value up and score a healthier profit. That is certainly true, but only in the cases where sales actually occur. And, sales do not occur if a shopper can simply not afford to make a purchase.

In the United States, the median household income in 2013 was $51,900.

According to Census data, households with HHI under $75,000 buy their favorite brands four out of 10 times. They can only afford to buy when their favorite items are on sale or they have a coupon. Households with HHI over $75,000 buy their favorite brands eight out of 10 times. Just 29.2 percent of Americans have HHI over $75,000.

With 70 percent of Americans having HHI under $70,000 and most acting on a brand preference only when a sale or coupon is in play, merchants who try to “save” money by not offering a coupon are actually ignoring 70 percent of potential buyers who would be more than happy to pull the trigger if only they had an incentive.

What's that saying? Penny wise and pound-foolish? Yea, that pretty much defines merchants who think they're actually increasing sales by not offering coupons.

OK so if this weren't reason enough for every merchant on the planet to offer coupons, here are five more reasons…

1. Customers Spend More With A Coupon

One might assume that since a coupon’s purpose is to lower the price on an item, that would lead to a lowering in revenue for a merchant. In fact, according to Forrester, new customers spend, on average, 3.1 times more and existing customers, on average, spend 2.6 times more per order.

Now lest a merchant think that every offer they make must be a steep one, moderate discounts actually lead to higher sales than steep discounts. For example, according to five census and data companies, a 15 percent discount resulted in an average order value of $192, but a 5 percent discount netted a $303 average order value.

2. Coupon Customers Are More Profitable

While some believe knocking down price through discount offers leads to lower profitability, nothing could be further from the truth. In our example, the average shopping basket value of a coupon-less sale is $53.88. Subtracting $10.78 for affiliate commission resulted in a profit of $43.10.

But when a 10 percent coupon discount was offered, basket value rose to $183.32. With the $18.33 discount applied and affiliate commission of $33 subtracted, the net profit rose to $131.99 yielding a 3.1X increase in ROI.

Coupons also contribute to increased profitability over time. In our example, over the course of 12 months, coupon usage resulted in a 1.5X lift in average order value and a 1.8X increase in profitability. Throughout that 12-month period, coupon usage also contributed to a 1.05X increase in purchase frequency. Coupon users shop more often.

3. Coupon Usage Increases Over Time

Increasingly, coupons contribute more and more to a merchant’s revenue. In our example, the implementation of coupon discounts resulted in coupons contributing to 17 percent of revenue in the first 12 months and 20 percent of revenue at the end of the second year.

Couple this data point with the above points which contribute to increased profitability and you begin to see a very clear picture; coupons drive sales, increase revenues, and improve profitability.

4. Coupons Deliver the Highest Conversion Rate

Using the example, if we take a look at the average conversion rate for all affiliate types, it’s 2.1 percent. Search returns 1.3 percent, social returns 7.7 percent, partners return 15.2 percent, however, coupons return a whopping 39.6 percent.

5. It’s Simple, Really

Not only do coupons incentivize people to spend more, deliver you more profit, build loyalty and increase conversion rate, coupons also give you access to the 70 percent of shoppers who wouldn’t otherwise give you the time of day. Do you really want to ignore 70 percent of the market?

Greg Shepard is CEO of AffiliateTraction.

Greg Shepard's blog
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