The total basket coupon is the most classic of retail promotions. Spend a minimum amount and I will give you a discount on your total purchase. Whether it is on the total store or a specific category or department, there is nothing more simple, nothing more powerful, nothing more attractive. Unfortunately, there is also nothing more wasteful.
It’s not that the classic basket stretch coupon doesn’t work. It’s just that it could work so much better. The traditional approach, where you set a minimum spend and give a flat discount on the basket, has two major problems.
Let’s say the offer is “Spend $100, get 15% off.” This offer is perfect for customers who normally spend $70 or $80. They will spend more than usual. You will get your incremental sales. They will get their discount. Everybody’s happy.
The first problem is that for some people, the offer will be out of reach. Maybe I am a single person on a budget. My typical weekly grocery spend is $30 or $40. I would love a 15% discount. But there is simply nothing you can do that is going to get me to spend $100 on groceries. For this slice of the population, the offer is irrelevant.
The second problem is even bigger. For some customers, the offer will do nothing to change their shopping behaviour. If I am shopping for my family of six and typically spend $150-$200 per week on groceries, you have just given me a discount for nothing. I may not even be aware of the promotion – I will just get a nice little discount off my bill when I check out. For this group of customers, the offer is a waste of promotional spend for the retailer.
Fortunately, the days of relying only on one-size-fits-all promotions trumpeted on radio ads and parking lot signs are behind us. With today’s customer analytics tools and the opportunity for personalized marketing, there is no reason we can’t create a promotion that allows everyone to play and that is profitable for the retailer. Even if you are already doing some personalization and using multiple spend thresholds for your basket coupons, there is probably room to improve by being even more precise.
The Right Stretch
Once you start on the path to try to stretch every customer’s basket, it is not long before you ask the obvious question: how much stretch are we aiming for? Calculating each customer’s average spend is a good starting point. But remember that customers do not spend the same amount each week like clockwork. If you only set the minimum spend to be higher than the average, you may still be giving money away. Ideally you want a spend minimum that is higher than most or all of a customers’ baskets.
Of course you will want to test various approaches and see what works best for your specific business. But as a starting point, our research shows that the right level is somewhere between 140% and 180% of a customer’s typical spend. This allows you to stretch a customer beyond some of their typical larger baskets, while still being achievable.
The Right Discount
The right minimum spend is only part of the equation. Using customer analytics to personalize the discount each shopper receives is another key to optimizing your basket promotions. You might want to adjust the discount level based on your view of the customer’s value. Maybe you have assessed that certain customer groups have the highest growth potential, and you want to focus your investment there. Or you may decide to vary the discounts based on how responsive each customer has been to discounts in the past.
If your offer is at a category or department level, you will also want to factor profitability into the equation. A category with healthy margins, such as high end cosmetics, gives you more room to play with than consumer staple categories where every penny of margin counts.
A good personalization tool will help here. The best tools will automatically recommend the right spend level and the right discount by customer to optimize your results.
The Right Message
Personalized marketing is about much more than discounts. Add the right customer messaging to the offer and you have a really powerful combination. The key here is to understand your customer and tap into the psychology behind their response to the offer. If you are targeting budget-conscious shoppers and want them to load their pantry, the right message might be “Stock up and Save.” Aiming at customers who like to explore new products? Then maybe the right angle is to invite them to “Add Some Adventure” to their meals. Or maybe you are trying to drive sales on some categories with higher margins than your core offering, such as apparel. Leading with a message like, “Treat Yourself” along with some well-chosen images of the right categories may be enough to nudge customers to a new part of the store.
The Right Frequency
The last dimension you will want to consider is the frequency of basket stretch coupons. The incredible effectiveness of these offers also has a dark side. Once merchants and operators see the sales spike created by highly personalized stretch coupons, they will want to run them all the time. This must be avoided. Remember that every sales spike you generate today creates a new floor that you will have to exceed in next year’s sales plan. And over time, customers will become desensitized to the discounts and even come to expect them. If not used carefully, these promotions can quickly become a drug – something that retailers turn to more and more often for a smaller and smaller benefit.
By using these strategies together, you will ensure that every customer gets the offer that is just right for them. A spend level that stretches them a bit…but not too much. A discount that is just right to motivate them…without giving away the store. And a message that connects with them on an emotional level. Get all three right, and you will leave your old one-size-fits-all promotions in the dust.