Companies that understand the psychology behind special offers create a favorable brand image, deliver happiness to new and returning customers, and boost long-term profitability and sales.
However, the smartest brands are selective about how they distribute ecommerce coupons and offers.
Look at this example joint offer from Chipotle and the dating app Hinge. Instead of slashing prices, it shares an exclusive “buy one, get one free” discount with targeted consumers who fit the audience profile of the two brands—and they put a positive spin into the messaging.
This original approach not only appeals to two different audiences (Hinge’s and Chipotle’s), but it also reinforces each brand in a fun way.
This article will empower you to develop a smart ecommerce strategy. Read on to learn about the following:
Why being too reliant on discounts can hurt profits
How the “free” in BOGO is better than a discount
Why “buy one, get one free” has strong conversion
How to leverage advanced functions of your ecommerce marketing platform
The value of customizing BOGO offers
How BOGO can help move dormant inventory
Sales promotions can stimulate sales, but don’t overdo it because it can hurt profits.
Marketing initiatives that are too reliant on discounts can create two situations that are less than ideal over the long term.
First, you can make your customers overly dependent on discounts.
You might unintentionally condition them into thinking another discount or offer is right around the corner, so they never buy anything at full price and always wait for a promotion, delaying the purchase and your revenue right along with it.
Additionally, because they get discounts so often, customers are more likely to ignore individual campaigns, which will lower your overall marketing engagement.
But most importantly, too much discounting can erode gross profit margins.
A recent CM Commerce survey that included more than 500 responses from ecommerce businesses showed that 27% of respondents had a gross profit margin of 25% or less.
When you run a 10% discount, for example, you might end up making sales, but the profit is nonexistent.
Our survey data also showed that 21% of respondents did not know their average gross profit margins, which means 1 in 5 small businesses are using discounts and running promotions that could be losing them money.
How a BOGO deal can be better than discounts.
When Dan Ariely, professor of psychology and behavioral economics at Duke University, published his book, Predictably Irrational, in 2008, he stunned many marketers with his research into the psychology of money.
He found that consumers would pick the free option over the discounted option, even if the discounted option had a greater absolute value.
“Zero/free is a source of irrational excitement; it’s called the ‘zero price effect,’” writes consumer psychologist Paul Marsden for Brand Genetics.
Consumers will trade up and pay more just to be able to get a free gift or bonus, such as free shipping. And they’ll wait in line for absurdly long times or go to extraordinarily long lengths to get something for free… Free is the most valuable word in marketing.
How can you then use the “psychology of free” in your promotional activities and discounting strategy?
Try BOGO promotions. They’re great at sparking interest in new products, driving sales on dormant inventory, and introducing sample versions of items that are sold by subscription.
Shoemaker Reebok uses it to help sell items it has the inventory for and where its user base is likely to need more than one product. In this example, Reebok is targeting activewear buyers who exercise more than a day or two a week.
Our customer data at CM Commerce, (now CM Commerce) had shown that BOGO promotions converted better than other discounts, so engagement rates saw a boost. However, a variety of promotional efforts are worth testing to find out what works best for your buyers.
With BOGO promotions, however, there are two other benefits: They help you clear out specific inventory, improving your cash flow, and they are generally more profitable too.
Take this example: Say product A sells for $10 and has a $2.50 cost. If you sell it for a 50% discount, you end up with $2.50 in profit.
Now instead of a 50% discount, the promotion is to buy one of product A and get another for free. The sale value is $10 and the total cost is $5, leaving $5 in profit, doubling the profit compared with the 50% discount promotion.
In some cases, you can profit even more. By giving away a specific product in a BOGO offer, you can move some of your older stock that you have been struggling to sell otherwise. Get cash for slow-moving stock and reinvest it into the business.
Find an email ecommerce platform that provides BOGO features.
You can quickly build a “buy one, get one free” promotion and include it in any email you send from CM Commerce.
Customize the “free” or discounted quantities in BOGO combo.
Specify both the buy and get quantities in your desired combination, such as “Buy 8, Get 2 Free.” If you don’t want to give away anything for free, you can issue a discount instead, such as “Buy One, Get Another One 50% Off.”
Another tactic: Seasonal offers can focus on a buyer’s proclivity for giving to others. This is an excellent example from Chronicle Books during the holiday shopping season. Essentially, this is a “Buy One, We’ll Give to Others on Your Behalf” offer.
The Rifle Paper Co. example above leads with the words “last chance.” Create some urgency with your BOGO promotion and set an expiration date on the email offer and coupon code.
You can resend your newsletter to those customers who didn’t engage with your BOGO promotional email.
When using the BOGO block in your email newsletters in CM Commerce, you can specify the name of the discount coupon to use. It makes tracking simpler for individual BOGO campaigns.
Successful retailers bolster their bottom lines using multiple channels.
Knowing that their customer base will include shoppers who happily pay full price and others who eagerly wait for a new coupon, smart brands deliver special deals to different segments of their contact lists to encourage everyone to complete their next purchase.
BOGO is an excellent option to use in your conversion mix. But remember:
Don’t overdo the discounts, because it can hurt profits.
“Free” is better than a discount—and one of the most psychologically effective marketing tactics.
You can customize many BOGO offers in CM Commerce.
Autoresponders and auto-apply functions for coupons will reduce steps for your customers.
Segment, retarget, and segment some more.
Deadlines and “last chance” time constraints can help incentivize sales sooner rather than later.
From welcome emails to re-engagement campaigns and beyond, we seamlessly integrate with your ecommerce platforms—Shopify, WooCommerce, and BigCommerce—so you’ll have all the features you need to exceed your goals.
CM Commerce features:
Pre-made conversion campaigns to recover revenue from abandoned carts
Follow-up segmented and personalized emails for cross-selling
Product reviews that spotlight your happy customers and build trust (and sales)
Automated feedback to increase repeat revenue
Ready-to-go templates or custom versions, coupons, and rewards with your branding