Horsing Around With Online Discounts
Issue #2158
- WEALTHY: A common marketing practice that could be making your profits sink (David Cross)
- HEALTHY: When it comes to fat, what’s mandatory and what’s not? (Jon Benson)
- WISE: Scott Deaver on giving a little extra to your customers
ALSO IN THIS ISSUE:
- What not to do as an employee (Michael Masterson)
- The thin line between persistence and pestiness (Will Newman)
- It’s Fun to Know… about Gatorade
- Add "sonorous" to your vocabulary
Turn the Tables on Microsoft, AOL, & Time Warner!
Oh no! Yet another mandatory upgrade from Microsoft. On top of that, they say you probably need a new computer too. Then there’s your Internet provider hiking rates and fees again. Meanwhile, more time flushed down the drain surfing the web for endless hours.
There’s got to be a better way.
Shhhh… There is…
Let me take you on a trip to T.O.S.O.T.I.
- Patrick Coffey
"Everyone appreciates getting a little something extra from the companies they do business with."
Scott Deaver
Horsing Around With Online Discounts
By David Cross
As I can tell you from experience, the cost of buying a horse is a fraction of the total cost of owning one. And so it came as a relief when I discovered Horse.com, "the source of everything equine." Their prices are highly competitive and they offer discount coupons and money-saving offers if you simply sign up for their e-mail newsletter.
In the last month, I’ve received three separate 10-percent-off coupons from them. On the surface, this seems beneficial to all concerned.
The benefit to me is that I save 10 percent on supplies, which, combined with their normal low pricing, means I’ve saved up to 50 percent off the recommended selling price of quite a few products. For example, we just built an electric paddock fence for our livestock for about half the price I’d estimated.
The benefit to Horse.com is that they have a satisfied customer (me) who will buy from them again.
They clearly know that sending out money-off coupons stimulates sales. However, not everyone should be happy with this deal.
First, I now suspect that the company sends out coupons indiscriminately. I received money-off coupons from them both before and after becoming a customer. Just by signing up for their newsletter and waiting, I’ll probably receive another coupon or two. But I’ve already proven I’ll buy from them - and they must know their prices are competitive. Consider the fact that I’ve purchased from them both recently and frequently, and you can start to see how they are making a fundamental marketing mistake.
Sending me discount coupons is costing the company 10 percent that they don’t need to spend… because I’d have bought the products from them regardless of the discount. (They already have low prices, remember.) Add to that any other customers who’d also have ordered without the additional discount, and Horse.com is losing a few thousand dollars - at least! - from each coupon they’ve sent out.
You May Be Making the Same Mistake
Sure, offering discounts is a great way to get some people to buy your products. But offering discounts when they aren’t required can be costly. Many businesses offer discounts to everyone, even if they don’t need to. If you’re doing that, it tells me you are marketing solely based on the possibility that your price is a barrier to your prospective customers’ making a purchase - offering a price discount to some people for whom price is not a barrier (if it is, indeed, a barrier for any of your prospects).
I see examples of this all the time.
Yesterday, I needed to buy a backpack-style child carrier for a forthcoming camping trip. I’d done my research and decided on which one to get. And I planned to buy through REI, where I’m a member of the company’s rewards program. Last week, I visited REI’s website and discovered that they had a 20-percent-off coupon for members. Great for me - I saved $48. But REI lost $48 they didn’t need to, as I’d have bought the carrier from them anyway.
But coupons are a tried-and-true marketing strategy, right? So, when should you use discount coupons to stimulate sales?
Almost never.
Price is seldom the only factor in a purchase. If your competitor offers cheaper prices than you do (or, possibly, cheaper than you ever could), look for another way to best them. Maybe it takes ages for them to get their orders out… or they never answer their phones… or they are frequently out of stock. So what if your prices are higher? If you tout your excellent customer service, include testimonials from satisfied customers with glowing reports of prompt delivery and great service, you can win over people who prize those benefits over the lowest possible price.
If you seek to compete only on price (which is one perception discount coupons tend to inspire in your customers), you are commoditizing what you sell. This means you’ll end up competing on the same field with companies that have much bigger buying power than you do. Instead, try focusing on non-price reasons to buy from you.
When You CAN Use Discounts
You definitely can stimulate sales by price discounting. If you want to test it, you can offer a discount on their first order to attract new customers. Of course, this isn’t a perfect test, because you’re offering an across-the-board discount and you will be discounting to people who would have bought from you anyway. But because it is so costly to acquire a new customer (as opposed to keeping your existing customers), you may still want to test the discounting approach for finding first-time buyers.
Let’s say, for example, that the cost of acquiring a new customer for your company is $75. And that by discounting your initial average order value, you can bring in a customer that you then are able to retain for less than $75. If this is true, it may be worth testing an initial-order discount coupon.
You can also analyze who is buying from you and offer price-based incentives only to certain customers who make infrequent or irregular purchases. A simple way of doing this is to use RFM (Recency Frequency Metrics), which can help you find out (1) which of your customers recently bought or performed a transaction and (2) the number of times a customer has bought something or performed a transaction. In Drilling Down, Jim Novo’s excellent and detailed book on business and marketing analytics, he outlines this strategy in detail.
It’s Okay to Say No
Many businesses will do anything to notch up a sale, even if it costs them to make that sale. I’ve seen many businesses, both product- and service-based, that will slash prices or offer unprofitable incentives to win a sale. But it’s okay not to make a sale if it costs you to make that sale.
That said, there may be a difference between spending money to acquire a new customer and spending money to get an existing customer to buy. If you have your cost accounting in place, you should know whether acquiring a customer at an immediate loss is acceptable. In certain types of marketing campaigns, breaking even at 80 percent or so (bringing in only 80 cents on the dollar initially) in order to acquire a new customer or to get the name of a new customer is acceptable. That’s because, over the customer’s "lifetime" (or amount of time she continues to be a paying customer), her value is many times the cost of the initial acquisition.
It’s best to use discounting when you know your customers and exactly how much they’re worth to your company. If your discount offer attracts people who only make purchases when they can save a few bucks, you will probably never be able to make a profit by having them as customers. Allow your competition to service unprofitable sales while you focus on how to make sales to the right type of customers.
One thing to focus on is how quickly you can market to each customer to win repeat sales. You should consider how discounting impacts your sales cycle and profitability, and look at ways of marketing so that customers who don’t need discounting receive different types of offers. Doing so can allow you to offer discounts while still pushing up your average order value and profitability from every order, every customer.
For example, you could look at your sales records or customer database and analyze which of your customers have both placed orders recently and ordered from you frequently. These customers are less likely to need price discounting to make them purchase again in the future. Plus, since they’re frequent customers, they are more likely to respond to other product offers you send them. So look at non-discount methods of getting them to buy more from you.
Customers who buy infrequently - or those who have not purchased in a while - may respond to coupons for discounts or free or upgraded shipping, or to offers that sell a second product at a discount. Test what works and see how this impacts future sales from the same customers.
To Discount or Not to Discount
It’s difficult to give a hard-and-fast set of rules to cover discounting. It depends on your business, your customers, and your profitability; on how much it costs to acquire and retain a customer; and an estimate of a customer’s lifetime value. Offering a flat discount to everyone is probably at the "don’t" end of the scale, and analyzing your customer types and testing different types of discounts to these discrete groups is definitely at the "do" end of the scale.
I would feel safer marketing at an initial amount below breakeven (if, for example, I spend $1,000 on marketing but bring in only $800) with a business like ETR. That’s because ETR has a solid understanding of the lifetime value of a customer, and knows whether that lifetime value is high enough to warrant an initial "loss." But if I were in a small business where the lifetime value of a customer was uncertain or where there was high price competition in the market, I probably would not offer willy-nilly discounts to all customers.
One thing is clear: When discounting, it’s important to understand how discounts affect your sales - but it’s perhaps more important to understand how much your discounted sales are costing your business.
[Ed. Note: David Cross is Senior Internet Consultant to Agora Publishing in Baltimore and one of the core contributors behind ETR’s new Internet business-building program. If you’re interested in profiting from all the benefits of starting an online business, click here to join our priority notification list.]
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"A Bull in a Glass House"
I met Jose Astorga, a 47-year-old former Marine, at AWAI’s Bootcamp last year. He told me he was writing a book, and that when it was published he’d send it to me. Most of the time, these sorts of promises don’t materialize - so I was both surprised and happy to receive a copy of A Bull in a Glass House in the mail last month.
I don’t have time for much casual reading these days, but I read this book with fascination. It’s an intriguing account of Astorga’s mind - how he sees the corporate world and how he saw himself as an employee. He was, truly, a bull of an employee. He was a hard worker with great potential, but he couldn’t deal with corporate politics, and it eventually undid him.
This is a good book to read if you want to understand what not to do as an employee. Also, it’s good to read as a manager if you want to understand how some employees may feel about you and your company.
It appears to be a self-published and self-promoted book. That’s good, because for this type of book, Astorga would have little or no chance of making any money by trying to get it published through a trade publishing house.
I’m always impressed when people accomplish significant goals, and he has my admiration for what he’s done.
[Ed. Note: Get Michael Masterson’s insights into becoming successful in your business and personal life, achieving financial independence, and accomplishing all your goals on his brand-new website. You’ll find updates on all of Michael’s books, news on upcoming ETR events, Michael’s blog, and room to send in your comments and questions. Check it out today.]
Be Persistent in Getting Clients… Not a Pest
By Will Newman
If you’re in the business of providing some sort of service, it’s important to be persistent when contacting potential clients. It shows that you’re serious about working for them. But you must not be a pest. And there’s a fine line between persistence and pestiness. Here are five strategies for staying on the right side of that line.
1. Follow up quickly on your first contact.
When you make contact with a potential client, follow up with an e-mail as soon as possible. Express how much you enjoyed talking with him. Then ask for a good time to call him for a brief, but more detailed, discussion about your services.
2. Don’t panic if you don’t hear back right away.
Potential clients are busy. Wait 10 to 14 days before sending another e-mail. Send her something related to her business, such as a recent news article that might interest her. Or if you’ve heard some good news about her business, congratulate her. Include a reminder of where or how you first made contact, and say something about your hopes of working with her. Space subsequent e-mails every two to three weeks.
3. Subscribe to your potential clients’ newsletters
Potential clients won’t know you subscribed to their newsletters - but this gives you another source of subjects for future e-mails. Continue to remind them of who you are.
4. Ask if they want to subscribe to your e-letter (if you have one).
A regular e-letter keeps your name in front of potential clients. And it provides another source of subjects for more personal e-mails.
5. Recognize when a lack of response means a lack of interest
If you get periodic responses from a potential client, interest is still there. But if you get a total lack of response after six months - or an outright request of "No more, please" - go on to more productive possibilities.
[Ed. Note: Will Newman is the editor of AWAI’s The Golden Thread online newsletter - a free weekly alert loaded with writing and marketing secrets, tips, and insights.]
Government Study Results in Resounding "Duh"
By Jon Benson
Ten years in the making. $415 million spent by the government. 50,000 participants.
What is it? The biggest low-fat nutrition plan studied to date. And the biggest flop in recent nutrition history. Geez. Uncle Sam could have paid me a mere million to say "Low-fat is not going to work for most people… and fat is not bad."
30,000 people were allowed to eat whatever they wanted, and 20,000 overweight and postmenopausal women were asked to radically change their eating patterns to low-fat. Eight years later, researchers looked at the data and concluded that "… there was little difference in the rates of breast cancer, colon cancer, and heart disease."
Do these boneheads not realize that we NEED dietary fat?
Reducing the trans-fats and other obviously bad fat fats in your diet is mandatory. Reducing overall fat is not. I eat meals very high in fat, but I do not overeat carbohydrates - and I am lean and healthy. Other people do really well on a lower-fat meal plan, which is not the same as a low-fat plan. They get between 20 and 25 percent of their total calories from fat, and they do okay with more carbs.
[Ed. Note: Jon Benson, a lifecoach and nutrition counselor who specializes in helping individuals discover a life-altering mind/body connection, is a contributing writer for ETR’s FREE natural health e-letter. His work in the field of post-40 fitness and mental empowerment has helped countless thousands. Learn how you can do the same at www.fitover40.com or www.mpowerfitness.com.]
It’s Fun to Know: About Gatorade
Gatorade was developed in the mid-60s as a beverage for the University of Florida football team - the Gators - to reduce the adverse physiological effects of extreme exercise. Funds received by the university from the sale of Gatorade (originally named "Go Gator") have been applied to support various research efforts.
(Source: University of Florida)
You Already Know Fortunes Are Made from Trading. The Question Is: WHAT Are "They" Trading Most? (And It’s Not Shares or Commodities!)
… Thirty times more trading going on than the stock market and mostly investment banks doing it. Ummm… Maybe "they" know something you don’t? Click here to learn more…
Word to the Wise: Sonorous
Something that’s "sonorous" (suh-NOR-us) - from the Latin for "sound" - has an impressive, resonant, clear, or loud sound.
Example (as used by John Sugden in Tecumseh: A Life): "Tecumseh spoke fluently in the Shawnee tongue, adding weight to his emphatic and sonorous words with elegant gestures."
[Ed. Note: Become a more persuasive writer and speaker … build your self-confidence and intellect … increase your attractiveness to others … just by spending 10 VERY enjoyable minutes a day with ETR’s new Words to the Wise CD Library.]
Michael Masterson
Copyright ETR, LLC, 2007