Using targeted coupons to reactivate customers and more
Using targeted coupons (i.e. coupons to be redeemed by specific customers) is an effective marketing tactic in B2C. In this blog, we will talk about how to use coupons to reactivate customers. Before that, let us first explore some other areas where targeted coupons can be valuable.
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- Initiating the first purchase: In many cases, users signup but don’t purchase immediately. Some B2C sites provide coupons automatically to every new user. But this can be expensive. It would be worthwhile to wait for couple of days so that only people who don’t naturally purchase will receive the coupon.
- Expand purchase footprint: It is common that customers fall in to a purchase pattern of buying from narrow number of categories. For other categories, they may shop at other sites. This promotion provides coupons to such customers with the goal of expanding the categories they purchase. The intent is to expand the customer’s purchase footprint at the site.
- Increase purchase frequency: Even active customers can be incentivized to purchase more. Marketing messages such as “build out your collection” with coupon incentives can often do the trick.
- Retaining lapsing customers: The goal of this campaign is to keep the customer engaged in the first place. When the customer start showing signs of lapsing (ex: less purchase frequency than usual), send a coupon to keep them engaged.
- Rewarding loyal customers: Here the goal is to generate goodwill by sending generous coupons on special occasions to reward the customer – for example, on customer’s birthday, Xmas, or membership anniversary.
Now let us get back to the original topic – reactivating lapsed customers using targeted coupons. The criteria to consider a customer “lapsed” depend on the specific business. A common definition we have seen in ecommerce is “no purchase in the last six months”. The coupon sent to such customers should be substantial so they are willing to act on it – i.e. do a purchase by redeeming the coupon.
Once the target population of lapsed customers is compiled (email list), a control population should be set aside to estimate the incremental performance by the test population resulting from the coupon.
Use past campaign performance stats to project the performance of the coupon campaign. This is a great practice for conducting disciplined, ROI-focused campaigns. Following parameters should be forecasted beforehand:
- Expected redemption rate of coupon
- Average redemption cost by test population (if coupon is % off, this will be derived by multiplying with average purchase price with such a coupon)
- Total coupon costs (by multiplying the above two numbers)
- Expected incremental purchase from test versus control population during evaluation period (say, during six months following the campaign date)
- Incremental profit (using the average profit margin of the company and incremental purchase during the evaluation period)
- Expected ROI of coupon campaign (from the above inputs)
The concept of the “evaluation period” is important for estimating ROI of coupon campaigns. This is the period we expect customer to make more purchases because of the effect from the coupon. The period is typically six months to one year.
After the campaign, track the actual purchases by control and test populations and see how the actual numbers compare to the forecasts. This will feed the learning cycle, which will make the future forecasts more and more accurate. Also, future campaign specifics can be tweaked for coupon offer, better redemption rate, and ROI.