How Incentives Can Cost You Money

Primary research done at Triggered Messaging has proved that cart recovery incentives can cost you money. So, when is it appropriate to incentivise, and when are you shooting yourself in the foot?

Our client was originally offering a 15% discount in their cart abandonment program and getting a huge 34% of sales uplift from cart recovery emails. When we stopped the incentives, the "cart recovery" sales plummeted to 5%, but the normal full-price sales increased, so our client made more money.

 

Why do recovery incentives reduce sales like this? It's probably because customers know about your incentives before they start buying. For example:

  1. Customers will abandon carts and wait for the offer in your recovery email, if this gives them a much better price. Or for example free shipping. This directly converts some full-price sales into less profitable, discount sales.
  2. Customers really don't like paying over the odds and an incentive discourages purchases by people who don't qualify. Have you noticed that when supermarkets run an offer such as "buy one get one free", there's very often one lonely pack left sitting on the shelf, after all the others have sold? Buyers know they can't get the offer price for the last one, and if they pay full price they will feel cheated, so they don't buy it at all.  The same thing happens online. Some customers need a product quickly, so they can't wait for the recovery email with the incentive offer, which means if they buy they pay more than they should.  Nobody wants to do this, so a large recovery incentive can drive some regular customers away, onto your competitors' sites .

 

That isn't to say that recovery incentives are always leeching on revenue:

  1. They work great to incentivise conversions of new customers who don't know what's happening ahead of time.
  2. They are likely to be bad for regular customers.
  3. Problems occur if you run incentives over a long period of time and your regular customers learn how they work and play the system.
  4. So either don't run large recovery offers, or be like the supermarkets and run large offers for a limited time, or to very specific customers. If you want offers for everyone, keep them small.

Promotions/incentives/discounts/bribes- they're all at your discretion. With thorough segmentation you can target groups of customers based on e.g. whether they are new, what they buy, or the last time they engaged with your business. For each individual customer, real-time data can enhance your RFM strategies. Triggered Messaging is very able to provide the data you need.

marketing incentives abandonment cart abandonment
Posted in Best Practice on February 13, 2014 at 09:27 by Triggered Messaging  |  Permalink  | 
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