Strategy Promos: What Really Works?
By Stephen R. Lett, president of Lett Direct

Promotions have become a regular part of doing business and something the consumer expects, especially this year. More than half of all catalogs, in fact, offer some type of promo, and some 20 percent of them offer free shipping!

Promotional offers motivate consumers to buy, helping customers overcome any resistance to purchasing. They’re also designed to encourage buyers to order more of a given item. But what really works?

Here are some of the most effective catalog and multichannel offers, and the best practices for them.

Most Common Offers
In order of effectiveness, the most common promotional offers are:
    1. free (or flat) shipping;
    2. a dollar amount off, can be a tiered amount;
    3. a percentage off; and
    4. a free gift with purchase.

Free shipping offers can increase revenue per catalog (RPC) by 20 percent or more. Obviously, there’s a cost associated with offering free shipping, and not all catalogers can afford to make that offer. If you’ve used a free shipping offer, test flat shipping — charging a flat shipping amount regardless of order size. I’ve tested at $2.95, $3.95 and $4.95, and seen no difference in response at those various levels. In most cases, flat shipping works as well as free shipping, and at least you’re covering some of your freight costs.

A dollar amount off the order generally outpulls a percentage off because consumers can relate to actual dollar amounts easier than they can calculate the percentage.

Free gifts with purchase are the least effective offers, but can still work. The return is better if the gift isn’t a product you’re selling, but something else that has perceived value.

Response Rate vs. Order Size
Which is better from the chart below, offer A or B? The results are identical in terms of the sales and RPC. But the response rates and average order sizes vary. An operations person might prefer A since there are fewer orders to pick and pack.

Offer B is better from a marketing viewpoint, however, because higher response rates put more buyers in the 12-month bucket. So increasing the average order size isn’t as important as increasing the response rate. Therefore, you shouldn’t structure offers to increase the average order, because that generally comes at the expense of response.

If you want to maximize response rates, don’t set offer-qualifying dollar minimums too high. If your average order is $75 — per offer A — that means approximately 80 percent of your orders fall below that average. Setting a threshold at $99, or even $75, means only a small percentage of buyers will be attracted to the offer.

So let more buyers qualify. Test no dollar minimum. This has encouraged more people to order and increased response and average order sizes in tests I’ve conducted. Also, customers who usually spend more than the order minimum will lower their spending to hit the minimum if there is one.

10 Simple Offer Rules

1. Know why to make the offer and use it strategically.
2. Prepare a pro forma; do your financial analysis.
3. Test offers against other offers.
4. Don’t overtest offers within a drop.
5. Don’t make offers during peak season if possible.
6. Don’t overuse an offer; retest it against a control or another offer.
7. Know what your competition is doing — you might need offers just to stay competitive.
8. Your sample size must yield statistically valid results.
9. Expect some decline in the impact of an offer over the control if the offer is repeated.
10. Read the results, and act on what you see.

Promos are key tools in the marketing toolbox, and customers often shop for the best. Follow these simple rules, and determine which offer works best for you.

---Source: Catalog Success April 1, 2009 (www.catalogsuccess.com). Stephen R. Lett is president of Lett Direct. Reach him at steve@lettdirect.com.