5 best practices to build profitable promotions

In contrast, successful marketing teams recognize that promotions are a hugely strategic channel. They’ll develop multi-year plans to build a personalized offer toolkit that integrates loyalty, promotions, and inventory management.

This article will show you how to shift from discounts that harm your bottom line to promotions that create substantial value for your company.

Many brands take an overly simplified approach to promotions. We’ve all seen the “20% off your first order” campaigns, or “we miss you” reactivations. Some run sweeping category or site-wide discounts. The pitfalls of this type of extreme discounting include eroding margins and increased pressure on businesses to achieve higher sales volumes.

When running a discount, you have to move a lot more inventory to maintain profit. For example: 

Anything less means sacrificing profit, and most discounts aren’t substantial enough to drive the demand necessary to break even on profit contribution.

Promotions should be treated as strategic investments to guide your customers where you want them to go. That’s why forward-thinking brands are moving away from blanket discounts, towards targeted incentives based on past transactions and other user data. Where should retailers start if they want to move beyond a basic promotions strategy?

Converting 25% of mass promotion spending into personalized offers yields a 200% ROI. That’s the central finding of a 2021 BCG white paper that reflects a core part of Talon.One’s approach to personalization & incentives.

Promotions without personalization lead to wasted spend due to generic mass discounts, and subsidizing users who were going to spend anyway. By tailoring promotions based on past transactions, retailers can limit the size and scope of the offer.

What do personalized promotions look like in practice? Let’s look at some examples: 

Working with a promotion engine like Talon.One allows you to personalize campaigns for individual customers or customer segments by utilizing data from customer interactions, your ecommerce shop, and various third-party platforms.

Instead of running item-specific or category-level discounts, focus on promotions that boost Average Order Value. Create clever product combinations based on users’ shopping habits, and encourage upselling and healthier basket sizes. This could mean leveraging bundles, buy-more-save-more deals, and ‘next time’ price promotions that increase AOV while protecting margins.

Coupon and loyalty program fraud affects 90% of online merchants' bottom lines, according to data from anti-fraud company Riskified. One common form of soft fraud is when users create multiple fake email addresses to rack up hundreds of dollars in coupon codes or vouchers. Regular reviews of how members could game the system, along with robust technology to prevent fraud, are essential.

To combat this, it’s important that your promotions software has strong fraud prevention features. At Talon.One, this includes: 

Improving the coupon rejection experience is a solid way to boost conversion. Our internal benchmarks indicate that 20% of users who have a coupon rejected leave the site immediately, failing to follow up on the purchase process.

This is because most rejection cases use the same generic error message, leaving users confused and frustrated, without a clear path to resolution. Instead, you could explain why they didn’t qualify, and let them know what comes next. For example: 

Talon.One supports 12 coupon rejection reasons out of the box, and marketers can configure other rules to customize the experience for specific rejection scenarios. When moving to a more dynamic approach from a generic ‘code rejected’ response, we regularly see incremental gains in post-rejection conversion. While it may not be the flashiest corner of your UX, it’s a meaningful and neglected flow that can drive a nice bump in revenue.

Recent earning calls reveal a clear trend among brands eliminating unnecessary discounts and defending their pricing power. White Stuff, Abercrombie & Fitch, and Target are just a few brands that recently declared their renewed focus on full-price sales. As Abercrombie & Fitch reported its strongest first quarter in the company’s history earlier this year, CEO Fran Horowitz said:

For last year’s holiday shopping season, Target built a dedicated Black Friday landing page: a full one-third of which highlighted low-price, regular items sold at full price (no deals!). This both strengthened Target’s brand as an affordable retailer, and kept their Black Friday baskets and margins closer to full price.

The best brands are working hard to eliminate unnecessary discounts and defend their pricing power. This is central to what we’re working on with our customers at Talon.One - running smarter, personalized incentives with a clear outcome in mind.