New York | April 2018
The Discount Dilemma: Do Your Customers Love You, or Your Discounts?
It’s no secret that the retail landscape has changed significantly in the past few years. With competitors like Amazon putting many retailers out of business, brands are desperately emailing more discounts than ever before.
Unfortunately, this approach trains customers to be “discount-shoppers” who always expect a bargain. Maybe more importantly, it can reduce your brand value.
So how do you decrease your reliance on promotions, while hitting your revenue goals?
We hosted a peer forum in NYC last week to answer this question with the help of marketing leaders from top retailers like Neiman Marcus, EXPRESS, Bloomingdale’s, Barnes & Noble and Saks Fifth Avenue, to name a few. We also heard from two panelists - Rachel Cowlishaw, Group Marketing Manager for Neiman Marcus and Amanda Craig, Email Marketing Manager for EXPRESS. Our attendees agreed that the best way for retailers to decrease their use of discounts and promotions is to deliver personalized content that resonates with audiences.
Delivering a Brand Experience with Editorial Content
Competing on price alone is no longer an option. Today anyone can Google for better prices while they’re browsing your product catalog. The only way to thrive in the current retail landscape is to create a brand that connects with its customers and offers a feel-good experience.
Our panelists Rachel and Amanda agreed that one of the best ways to do this is by delivering more editorial content. This includes stories about your brand, helpful how-to pieces, or any piece of content that is designed to entertain the reader. While it may not be as effective as promotions in driving immediate sales, our peer forum attendees found that this type of content greatly increases customer engagement and loyalty in the long run.
Both Neiman Marcus and EXPRESS excel in delivering editorial content to their customers. The image below shows how Neiman Marcus incorporated inviting pictures and stories of rescue dogs along with shoppable content on their spring line. They also regularly offer makeup tutorials, fashion tips and articles on seasonal trends.
Image taken from Neiman Marcus email campaign
Similarly, EXPRESS guides their customers on ways to wear the fashions they purchase, and even featured a “How to Grill the Best Steak,” long-form email for men last year.
Image taken from EXPRESS email campaign
The last example shows that editorial content doesn't always need to be shoppable, it just needs to be true to the core of your brand. In their case, EXPRESS customers want to be inspired, so this educational piece is right in line with their value proposition.
The Effect of Non-Promotional Email Content on Customers
Attendees were surprised to learn that most shoppers are just as likely to engage with non-promotional content, like the examples above, as they are with promotions and discounts.
Dr. Greg Leibon, Dartmouth College Mathematics scholar, presented his research on the effect of discounts on customers of a Fortune 500 retailer: he found that a majority (80%) of the retailers’ customers were just as likely to engage with emails containing small or no discounts as they were to engage with large discounts (greater than 30%), while only 20% of customers responded significantly more to large discounts.
This represents a large opportunity for retailers to substantially reduce their discounts by supplementing with editorial content and smaller discounts. A great way to start is to test your customers’ propensity to respond to discounts, then segment accordingly.
Overcoming the Challenges: Email Marketing is Time-Consuming and Reactionary
While high-quality editorial content is great for veering away from discounts, many of our attendees expressed the challenges of implementing it in their fast-paced organizations. As Amanda puts it, making beautifully-designed creatives doesn’t give you the flexibility to adapt quickly to changes. Remaining agile is necessary but very difficult.
For example, Monday morning meetings often change the course of the email calendar. Final decisions on product-focus and promotions are made for the week ahead based on the previous week’s performance. Because of these tight deadlines, our attendees believe that retailers need to streamline the email marketing process by creating dynamic templates, storing assets in a ‘creative bank’, and using machine learning to match audiences with the right email content.
Storing Creatives in a 'Content Bank'
Some brands said their teams are creating 'content banks' and tagging images on a category level so that they’re ready for future projects with quick turnaround times. Having them organized in one place makes it easier to keep expensive creative assets for longer and reuse them in future campaigns.
Using Dynamic Email Templates to Mix and Match Content
Instead of creating a one-off email about one topic, which cannot be reused, Rachel recommends using dynamic templates that mix and match editorial, discount and shoppable email content.
For example, you may include editorial content at the top of your email, then add product shots below. In a few weeks, you can reuse any of these images in a different area of your email to extend its shelf-life. Amanda adds that when you offer a variety of content in your emails, you’ll be able to get click-data faster for customers without a lot of transaction data.
Using Machine Learning to Send Personalized Emails
Rachel at Neiman Marcus has seen an incremental lift across all KPIs by creating a dynamic email template that uses machine learning to mix and match editorial, product and promotional content.
James Glover, Coherent Path CEO and forum moderator, suggests that retailers ought to consider using machine learning to wean shoppers off of discounts and deliver the right email content for each customer. Instead of sending the same email content to large segments, machine learning can listen to your audience’s data to decide what type of products and promotions should be emailed to each person.
For example, the 80% of “non-promotion addicts” in Dr. Leibon’s study were sent emails with small or no promotions, and both their click-throughs and conversions increased by 15%. Not only can these customers be weaned off of promotions immediately, but their engagement will increase and the likelihood of becoming "undeliverable" will greatly decrease.
By contrast, the 20% of “promotion-addicts” need to be weaned off of discounts very slowly, if at all. When these customers were sent less or no discounts, this did increase their click-throughs by 11%, but there was also a 3% decrease in conversions. For many retailers, it is worth the tradeoff to have a short-term reduction in conversions if they can increase long-term engagement and brand loyalty.
Image from Dr.Leibon's study on discounts in retail
Lifetime-Value over Short-Term Gain
Whenever you’re thinking about sending more discounts, remember these wise words from Marketing Consultant and famous TED Talk-er, Simon Sinek:
“Tell [customers] what they want to hear, give them a promotion, give stuff away, you’ll probably get them to do business with you once or twice. But if you want to foster relationships with customers, if you actually want to build a relationship with someone, it requires all the same rules as any kind of relationship. The relationship that someone has with a brand, is the same as a relationship that someone has with a person.”
The main takeaway from our peer forum is that discounts hinder longterm goals like lifetime value and loyalty. By becoming laser-focused on the value and experiences you offer, customers will not only buy from you today, they will become your lifelong brand ambassadors.