Can Discounts Change Consumer Behavior?
After analyzing over 400 million checkouts, Bed Bath and Beyond announced last fall that it would be cutting back on its infamous coupon strategy, deeming 40% of them “ineffective.”
“Ineffective at what?” you might ask. And that is a great question! When it comes to discounting, knowing what the offer should achieve is the most critical thing to understand.
Most businesses offer discounts in order to get customers to do something – come in, spend more, or maybe try something new. But beyond that sale or visit, does a discount have the power to change customer behavior?
To get to their answer to this question, Bed Bath and Beyond had to run an extensive analysis of millions of shoppers’ baskets and thousands of items, likely because they hadn’t been doing so all along. They’d been sending out offers indiscriminately and assuming they were necessary to keep the revenue flowing.
But they learned that about half the time they gave up 20% on a product or total, they didn’t need to. They could have kept that revenue and achieved the same result. Hence, the decision to cut back on coupons in order to boost profits.
Here are some best practices that will help businesses use discounts as a tool to understand and ultimately change customer behaviors. When followed, they can help change perceptions about discounting, reducing the tendency to rely on blanket discounts that only serve to reduce margin.
Set an Objective | What do you want it to Do?
Each discount should have a clear goal. Usually the stated objective is to “increase sales” or “drive traffic.” But those statements are vague and can be short-lived. A single discount should be part of a larger strategy that leverages that initial spike in sales or traffic from the offer. Think of the initial result like a springboard to deliver more experiences for the customer, leading to longer term changes in behavior such as an ongoing pattern of more frequent visits or bigger baskets. The objective of a discount should center around a permanent behavior change you want to achieve.
Identify Customers | Who got it, Who used it, Who didn’t
Perhaps you have asked yourself, “How can I be sure it’s the discount that’s driving sales?” The only way to be sure is to identify customers and track behavior all the way to the point of sale. This speaks to the value of identifying customers through a loyalty program or other means. Without a way to identify customers, brands cannot understand the impact of individual offers. The offer itself can be a way to identify a customer and start building out a profile, recording events such as whether or not they redeemed an offer, which type of offer it was, when they used it, what they purchased, and most importantly, whether or not any of these behaviors have continued.
Measure Results | The Aftermath
Everyone knows measurement is important. But measuring behavior change takes time. If the goal is for an individual to continue to try new products or to refer to new customers, determining a time frame for attribution is an important part of effective measurement. We know that discounts will cause a spike in activity. But the period after the spike is what needs to be monitored. If you have succeeded in identifying customers and capturing the behaviors you want to track, you will be able to see if there are continued changes following their use or receipt of a discount.
Optimize | Was it All Worth It?
Optimization is a word used a lot these days. Many times people think about optimization of offers based on immediate impact – people in the door, total revenue – this is the spike we discussed in the previous section. But optimizing a discount effectively really means that you are improving its ability to change behaviors over time, so that you don’t have to keep discounting, or that you can reduce the amount of the discount or even the type of offer and achieve an equally desirable result.
When managed correctly, discounts do have the power to change customer behavior – but they can’t be the only tactic. If they are, the only behavior that will be changed is a reliance on discounts – both for the brand and the customer. Instead, discounts should be part of a larger strategy to create loyal customers.