How to Break Coupon and Markdown Culture, Step by Step
Discount culture has intensified over the last several years, due to the amount of competition among pure-play e-commerce and bricks-and-mortar retailers. Suboptimal buying and unrealistic growth targets create a perfect environment for excessive discounting to drive top-line revenue. One of the biggest culprits contributing to excessive discounting is the lack of focus on gross profit within most marketing organizations. Profitable growth is achieved by ensuring all parties are aligned toward gross-profit, not just top-line revenue growth. With the latter, marketers are motivated to discount at whatever levels finance will allow to drive top-line sales.
Short-term sales gains create longer-term issues associated with customer lifetime value (creating deal-seeker customers) and erosion of brand equity (brand loses perception of value among high-margin customers).
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Breaking Coupon Culture
Incentives drive behavior among people within retail organizations. Once business KPIs are aligned toward profitable growth, only then can retailers change their approach to discounting. For some, it’s too little too late. J.C. Penney, Lord & Taylor and Bed Bath & Beyond may never be able to evolve beyond their coupon culture. For many, there is still time. The current economic environment has created margin pressure on almost every retailer. Combine excessive discounting with declining sales and an inefficient physical footprint with onerous leases and you have a recipe for disaster. Breaking the cycle is hard, and many retailers fall behind.
On the other hand, many retailers are evaluating new technologies to innovate their way out of the current situation. But reinvention takes time and a lot of experimentation. Especially when it comes to adjusting internal culture within legacy organizations.
Rather than focusing on flashy improvements — such as virtual reality, augmented reality and digital signage — smart retailers are evaluating technologies that are geared toward short-term and long-term measurable sales and profit gains. While it’s not sexy, these improvements are centered around merchandising, pricing and promotions. Why? Because these efforts directly contribute to the bottom line with a measurable ROI.
Managing Change
As retail organizations and marketing teams are rapidly moving from a focus on top-line growth (KPI on gross revenues) to a focus on profitable growth (KPI on gross profits), many leaders are trying to figure out the how. For example, brands struggle with deciding how to reduce customers’ — and marketers’ — dependency on coupons and discounts. Some brands make the mistake of going “cold turkey,” which never works because customer expectations don’t change overnight. Others stay the course with universal promotions for all customers because they’re scared any changes will alienate their core base. The good news here is there is a middle ground, and the gray area is vast and ripe for innovation with an offer management platform, or OMP.
Very few companies have the internal resources to develop most offer management capabilities, so many will turn to specific partners to solves pieces of these. A word of caution: A fragmented offer management strategy will cost the business a lot of money and heartache — and customer experience — over the long-run. Most organizations committed to an offer-based strategy should consider a single provider of offer management or divide these capabilities between internal resources and a third-party OMP to strike a balance between the most robust set of capabilities and bespoke customization that matches the needs of the organization. For those starting down the path, please consider the offer management roadmap below:
Step 1: If you’re running offers, ensure you have single-use codes to prevent online or in-store offers from being used more than once. It’s a best-practice to leverage this capability for all offers to ensure robust tracking and analytics. A retailer should minimally leverage this capability for offer values north of 25 percent off a purchase, given those richer offers are more likely to be abused by deal-seeking customers. Leverage OMP capabilities to configure offers for optimal distribution control to ensure fraud-prevention and clean data for reporting.
Step 2: Web site, e-mail and direct mail are the most obvious channels for deploying these capabilities. E-mail is quick to deploy and tends to be very promotional. Direct mail is expensive and a good candidate for testing unique offer codes, especially for higher-value offers for customer acquisition. Web site homepages are an easy place to test unique offers on most platforms.
Step 3: Begin leveraging offer capabilities within customer acquisition channels, such as search, affiliate and display. Ensure that offers and delivery as well as customer experience are consistent across each promotional channel.
Step 4: Integrate your OMP with existing retailer data systems to optimize offers within a channel, and collect first-party data signals around offers and deposit them into a centralized CRM, DMP or CDP system. From there you can optimize your offers with other data for enhanced segmentation efforts.
Step 5: Begin creating pools of offers — by basket value, product category and product stockkeeping unit and leverage OMP artificial intelligence capabilities to help with real-time optimization of offers in one, some, or all marketing channels.
Step 6: Keep experimenting to refine the use of data and offers as it relates to ROI and margin performance within certain marketing channels. What worked yesterday might not work tomorrow.
The optimization of offers represents an overlooked financial opportunity for tech-driven marketers. What used to be time-consuming and costly for a retailer is now solvable with cutting-edge solutions that analyze data at unprecedented speeds and automate decisions that previously could take weeks or months to make. Technology has advanced to a place where retailers have minimal risk and tremendous upside in testing new solutions that could yield breakthrough business results.
Jonathan Treiber is cofounder and chief executive officer at RevTrax, an offer management platform service provider.
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