Three expert strategies take buyer behavior and timing into account.
According to the latest research into buyer behavior, the "Rule of 100" applies when offering a discount. For a product priced under $100, a percentage discount will seem bigger than the identical dollars-off discount.
"Success in the coming peak season calls for multilevel optimization strategies."
To the buyer of a $30 shirt, $3 off doesn't seem like much of a deal, compared with 10 percent off. On big-ticket items, the reverse is true: $200 off a $2,000 laptop seems like a better deal than 10 percent, says Jonah Berger, a Wharton School of the University of Pennsylvania marketing professor, in his book, Contagious: Why Things Catch On.
That's just one of several factors that come into play when retailers are deciding what, when and how much to discount, says Bala Ganesh, a UPS marketing director. "Success in the coming peak season calls for multilevel optimization strategies," he advises. These include:
1. Target loyal customers first. "We've found that purchasing habits vary through peak season," he says. Around Thanksgiving and earlier, people take advantage of sales to buy for themselves, rather than buying gifts. "Toward late November and December, the mix changes to gift purchases."
That means you can move promotions forward in time. Promotions aimed at loyal customers can lower both the peak and the pain involved in dealing with most of the shopping happening all at once.
"A lot of retailers are doing that, starting right after Halloween," Ganesh says. For example, you might promote a private sale, offering a promotion that will move them upstream. "Call it a 'sneak peek for our loyal customers' or call it a 'Pre-Thanksgiving Inventory Clearance Sale,' " he says.
How do you know which customers are loyal? These buyers are already on your e-mail list, they have purchased earlier in the year, or they have clicked through from your e-mails and converted into sales. "You have all the data you need to identify those people and zero in on them," Ganesh says.
A word of caution: "You don't want a private sale up-front that cannibalizes sales or gives deeper discounts to people already planning to purchase," Ganesh advises. "For example, if you are an outdoor retailer and deer season is coming up, don't discount any further than you would normally during deer season – those people would already be buying."
2. Test and stagger your promotions geographically. If all your promotions hit on the same day, your fulfillment operation may be stressed to the breaking point. Ganesh recommends running sales by location or geographic area. For example, you might run a promotion in Texas one day and two days later in California. "That way you are not clogging your fulfillment operation by doing everything at once," he says.
A regional or location-based approach also lets you conduct tests to experiment with what works best – a percentage discount compared with dollars off, or free shipping at a certain cart threshold.
"If you are doing banner ads on Facebook, you can specify that you only want people in Texas to see that ad," Ganesh says. "With an e-mail campaign, you will also know the customer's address, so you can segment by location that way as well." Even smaller retailers are now using Facebook to push coupons to smartphones.
3. Align with key peak season dates – including international holidays. You'll want to sync your promotions with Thanksgiving, Black Friday and Cyber Monday – all of which are stretching into weeklong affairs. Green Monday, traditionally the second Monday in December, will be Dec. 8 this year, and most major retailers will start online sales for that day (and its discounts) at midnight.
"We are starting to see upticks internationally as well," says Ganesh, especially for online sellers and global operations. "Do not overlook Boxing Day, Dec. 26, especially if you are selling to the U.K., Canada or Australia." (Get a list of international holidays here [PDF].)
Other dates important for e-commerce sellers include Singles Day (China) on Nov. 11, Free Delivery Day on Dec. 18 (United States), Hanukkah on Dec. 16 (United States and in countries around the world) and Kwanzaa Dec. 26–Jan. 1 (in the United States and Western African Diaspora).
For more on buyer behavior, see the 2014 Pulse of the Online Shopper™ study.