In the ever-evolving world of direct-to-consumer (D2C) businesses, finding effective strategies to boost conversions and maximize customer engagement is crucial. As an eCommerce merchant, you've likely explored various marketing techniques to attract customers and drive sales.
In this blog, we will explore the power of discounts, store credits, gift cards and cashback, and delve into a cost-benefit analysis to understand how these strategies can transform your D2C business.
UnderstandingtheCustomer Mindset
Before we dive into the cost-benefit analysis, let's first understand the customer mindset. In today's competitive market, customers are always on the lookout for a good deal. They are bombarded with numerous ads and promotions, which can make it challenging for any brand to stand out. Offering discounts, store credits, gift cards and cashback not only grabs their attention but also influences their purchasing decisions. By leveraging these strategies effectively, you can create a win-win situation for both your customers and your business.
Let's understand the features and benefits of discounts, cashback, store credits, and gift cards and compare the cost and benefits using a $100 T-shirt as an example. Please note that the analysis may vary based on specific terms and conditions, so it's important to consider the details of each offer.
Discounts - The Starboy of eCommerce
Discounts are price reductions offered on products or services for a limited period. They appeal to customers by providing immediate savings on their purchases.
Features
Temporary reduction in the selling price
Can be percentage-based or fixed amount
Commonly used to drive sales during promotional periods or clear inventory
Benefits
Attract new customers: Discount Strategy in eCommerce can entice new customers to try a product or service for the first time, as they perceive it as a great deal.
Increase short-term sales: By offering lower prices, businesses can stimulate impulse purchases and boost sales volume.
Cost Benefit Analysis
Cost: Let's assume a 20% discount on the $100 T-shirt. Therefore, the discounted price would be $80.
Benefit: The benefit of a discount is that the customer immediately pays less for the product upfront and increases conversion for the store.
However, discounts can have a negative impact on profit margins, especially when used extensively. Frequent discounts can condition customers to wait for deals, tarnishing the brand value and reducing the willingness to pay the original price.
Define types of discount : % based, Amount based, tiered based
Calculate impact on profit margins : ensure that the discounts are sustainable
Duration of the discount offer
Restrictions on product categories or specific items
Define the eligibility criteria for customers to qualify for the discount
Promote discount via email marketing, social media and other channels
Track the performance of the discount, impact on sales, readjust your discount strategy if required
Cashbacks
Cashbacks are a form of post-purchase rebate where customers receive a portion of their payment back in the form of cash or credits.
Features
Customers receive a refund or credit after making a purchase
Can be percentage-based or fixed amount
Often used to encourage repeat purchases or customer referrals
Benefits of Cashback in Online Stores
Encourage repeat purchases: Cashbacks incentivize customers to return to the store to redeem their earned credits, increasing customer retention and fostering loyalty.
Boost customer referrals: Offering cashbacks for referrals motivates existing customers to recommend the brands to others, expanding the customer base.
Increased Average Order Value (AOV) as customers are often motivated to spend more to achieve higher cashback values.
Cost Benefit Analysis
Cost: Cashbacks are typically offered as a percentage of the purchase amount after completing the transaction. For instance, if the cashback is 10%, consumer will pay the full $100 for the T-shirt initially.
Benefit: After the purchase, customer receives a cashback of 10% ($10 in this case) credited to their account, which can be used for future purchases or transferred to their bank account.
Checklist for running Cashback campaigns
Define Cashback parameters - percentage or amount of cashback to be offered, minimum purchase amount by customer
Use an app to drive cashback campaign and implements a system that automatically calculates and applies cashbacks to eligible orders like GiftKart
Promote cashback on website or via email marketing, social media and other channels
Track the performance of the cashback, impact on sales and AOV, if required, extend the validity of cashbacks
Store Credit
Store credit refers to a virtual currency issued by the brand, which customers can use as a payment method for future purchases.
Features
Customers receive a credit balance that can be used in the store
Encourages repeat purchases and customer loyalty
Can be personalized based on customer behavior and preferences
Comparative Benefits
Drive repeat business: Store credit encourages customers to return to the store to redeem their credit, resulting in higher customer retention rates and increased sales.
Enhance customer experience: By tailoring store credit offers to individual customers, businesses can create personalized incentives that improve the overall shopping experience.
Cost: When using store credits, customer usually pays the full $100 upfront.
Benefit: Instead of receiving an immediate discount or cashback, customer receives a credit of $100 to be used exclusively within that particular store for future purchases. This helps in repeat purchases and maximizing sales with Store Credits.
Store credit can be a powerful tool for increasing customer loyalty and generating long-term value. However, it's essential to ensure that the value of the store credit is carefully managed to avoid significant financial liabilities.
Checklist for running store credit based campaigns
Define the store credit policy, does it cover returns and cancellations
Use an app like Giftkart for Shopify that automatically tracks and manages store credits
Track the performance of the store credits, impact on sales and AOV
Gift cards are prepaid cards that hold a specific monetary value, allowing recipients to choose and purchase products or services from a particular retailer.
Features
Prepaid cards with a specific monetary value
Can be physical or digital
Suitable for gifting occasions and incentives
Benefits
Expand customer base: Effective use of Gift Cards in retail can attract new customers who might not have considered shopping at the retailer previously, leading to increased exposure and potential long-term loyalty.
Upsell opportunities: Customers often spend more than the value of the gift card when using it, which presents upsell opportunities for the retailer. They may be enticed to purchase additional items or services, generating higher revenue.
Cost: Similarly to store credits, customer will pay the full $100 upfront to purchase a gift card.
Benefit: A gift card allows the recipient to use the $100 value to make purchases in the store that issued the gift card. Gift cards provide flexibility for the recipient to choose their preferred products. Most cost efficient ⭐️⭐️⭐️⭐️⭐️
Checklist for running Gift Cards campaign
Define the gift card denomination (for eg. $50, $100), set gift card expiry
Decide if you will provide customized or branded gift card designs
Mention the redemption details on the giftcard and include it in the communication
Use an app like Giftkart for Shopify to purchase and redeem gift cards on your website or in-store. Allow customers to send personalised messages/video messages for the recipient.
Communicate gift card campaign via email to ensure maximum reach
Review gift card sales and redemption data to gain insights into customer preferences and trends.
To determine the best option, consider your customer’s shopping habits and preferences:
If your store category doesn't have repeat users, cashback or discounts would be more favorable as they provide immediate savings.
If your customers visit your store to repeatedly, store credits and gift cards are a better option, as they enable customer loyalty and retention.
By understanding the customer mindset and leveraging these strategies effectively, D2C businesses can attract new customers, boost sales, encourage repeat purchases, and foster customer loyalty.
Strategic Insights: Choosing the Right Incentive for Your Online Store
Discounts provide immediate savings and can attract new customers, but businesses need to carefully manage their impact on profit margins and brand perception.
Cashbacks incentivize repeat purchases and customer referrals, but businesses should ensure they don't create excessive financial strain.
Store credits drive repeat business and enhance the customer experience through personalized incentives, but their value should be carefully managed to avoid significant financial liabilities.
Gift cards expand the customer base and present upsell opportunities, but the recipient's shopping habits and preferences should be considered.
Ultimately, the right revenue strategy for a D2C merchant depends on their specific goals, target audience, and business model. By analyzing the benefits, comparing eCommerce incentives and conducting a cost-benefit analysis, merchants can make informed decisions that align with their objectives and contribute to their long-term success in the competitive D2C landscape.
Frequently Asked Questions
1. What discount strategies should I consider for my e-commerce store?
Experiment with various discounts — fixed, percentage-based, tiered, bundle, and volume and see what works. Utilize limited time offers and exclusive discounts for subscribers to drive urgency and loyalty.
2. How can I use cash back and store credit to encourage customer loyalty?
Implement a tiered cashback system rewarding repeat purchases. Offer bonus store credit for larger orders and provide discounts for store credit redemption.
3. How can gift cards help me attract new customers and boost sales?
Offer gift card incentives for special occasions and holidays. Encourage larger purchases with gift card bonuses. This attracts new customers and encourages higher spending.
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Neetika M
Neetika is the founder of Skai Lama. Passionate about building SaaS, Product Development, and Marketing, she talks about eCommerce Growth, Product Bundling, Gifting, Retention, and Shopify.
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