Episode 70: How to Get Customers to Buy Without Discounting

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Transcript

Announcer:

Welcome to Nerd Marketing, an original podcast for e-commerce operators and marketers. Looking to level up? Drew Sanocki and Michael Epstein will bring you actionable strategies from their decades of running eight- and nine-figure brands along with interviews and insights from the leaders of some of the most successful brands in the world.

Drew Sanocki:

Hey everybody. Drew Sanocki at the Nerd Marketing Podcast. We talk a lot about using discounts to encourage and incentivize user behavior, but a lot of brands don't want to discount. They want to be like Apple and never have a discount. They want to build a brand and it's a great thing to aspire to, but how do you incentivize customer behavior if you're not going to discount? That's the subject of today's podcast. We go over a number of our top discount alternatives, just different ways to incentivize customer behavior when you don't want to come out with a certain percentage off, and I hope you enjoy it. It's a really popular one. It's probably one of our most listened to and requested podcasts, so discount alternatives. Hope you enjoy it. Mike, today we're talking about a hot topic,

Michael Epstein:

Coupon alternatives. We did a webinar on this not long ago, drew, and we got so many people asking for this that we said we should flip this to a podcast. I think there's a lot of interest in this topic.

Drew Sanocki:

There's a ton of interest when we bring up discount ladders, when we bring up promotional strategies. We're talking about discounting. Every time I've ever brought this up at a talk on a webinar is like, what if you don't want a discount? Everybody wants to be Apple. They don't want a discount, and we're here to explain that You don't have to, right? I mean, certainly discounts are the easiest thing to use when you're promoting, but there are a lot of alternatives you can use. The important thing is you're just incentivizing customer behavior. So something to keep in mind. Exactly. How did we know there was a lot of interest in this? Because in a recent email I sent out, I said, Hey, if you want Mike Epstein's webinar, a recording of Mike Epstein talking about discount alternatives, just reply to this newsletter with Steen Me. And I meant to take that out because around the office we call you Steen, but I was like, I'll replace it with something, and I sent it and then for the next week, we're getting thousands of replies all saying Steam Me from men, women, all races and ethnicities are replying.

Steam me and the customer service group at Post Piots like, what is Steam Me? So I had to explain

Michael Epstein:

A bunch of replies. I don't know what this means, but I just want you to steam me.

Drew Sanocki:

I remember that one. Yeah, I'm not sure what I'm getting into, but please steam me. Yeah.

Michael Epstein:

All right, so we're going to steam everybody today.

Drew Sanocki:

We're here to Steen you. All right. It's going out as a podcast, but we got a slide deck in front of us here. Maybe we'll put the slides online in the show notes, but we're going to do the best we can to sort of explain what you're seeing on the slides. Right now you're seeing a picture of Steen Me of what that is. Visualization, top coupon alternatives, top five, top five coupon alternatives

Michael Epstein:

To sort of set the stage here. One thing that I like to call out that some brands forget sometimes is that when you say, I'm going to offer a 20% off discount, it's 20% off of revenue, but it's much higher percentage of your margin because there's cost of goods that you're not factoring in there. If your cost of goods is 50%, if you make 50% gross margin and you say, I'm going to offer 20% off for Black Friday or some holiday, the impact isn't 20% of your profits, it's 40% of your profit. So it's just something that I think some brands tend to not think a lot about because they think, oh, it's just 10%, it's just 20%. Well, if you look at the impact to your profit, it's a lot bigger than that. So that's why lots of brands want to think about how can I still incentivize action but with a lower hit to my profits? So that's what we're going to talk about some of those options.

Drew Sanocki:

That is huge, great insight.

Michael Epstein:

So thank you.

Drew Sanocki:

You like that comment?

Michael Epstein:

Thank you.

Drew Sanocki:

No, it's good insight. Nobody can do math, right? Let's just give 'em 20%. It's okay. You just drop profitability of the business by 40%.

Michael Epstein:

Exactly. And the purpose of these discounts is to trigger action, get somebody to take an action, create urgency, but the goal should be using the minimum discount amount. Like Drew, we talk about discount ladders all the time. It's that same sort of concept of only giving people sort of the minimum incentive they need to take the action that you want and you want to maximize profitability by doing that.

Drew Sanocki:

One of our mentors, Jim Novo, always talks about reducing friction. It's sort of create an incentive for a customer to do something or reduce friction. And it's not just like the magnitude of the incentive could also be the timing. You're not going to just give a blanket 20% to everybody. You've got to give to the right people.

Michael Epstein:

Exactly.

Drew Sanocki:

A little bit of a sidebar. Alright, so let's get into some coupon alternatives, some discounting, alternatives. The first one, gift with purchase.

Michael Epstein:

Easy. This is an easy one. So the perceived value of the item that you're giving away as a gift is going to be higher than your actual cost of that item. So rather than giving somebody $20 off a hundred or 20% off a hundred, can you give them a gift worth 20 bucks that might actually only cost you five. So the example we've got up on the screen is from a brand called Newport. They sell fishing apparel and gear and the idea is they're offering a free hat with purchase of a hundred bucks or free with a purchase of a thousand bucks. So the hat had perceived value, maybe $20, their cost, I don't know, three bucks when you're talking about the impact to margin, this is a massive difference, right? They're getting $20 a perceived value, but it's only costing you three much better obviously than giving away the actual $20 or 20% off.

Drew Sanocki:

Love it and easy to set up. You can do a lot of this stuff just ordering in bulk off Alibaba these days and just get a warehouse filled with hats to send out. Yeah, I remember when we acquired auto anything from AutoZone, one of the things we inherited, they had inventory of something. Do you remember what it was? Key chains or something that they could not unload? Yes. That we used as the gift would purchase for the next two years. Do you remember this?

Michael Epstein:

Yeah, all the time. And people were like, oh, I can get a hat with my purchase. That's awesome. 

Drew Sanocki:

A hat or a key chain. It was something they had like a room full of this. We're like, what are we going to do with this? Okay, that's our gift with purchase.

Michael Epstein:

Yeah, it's great for CPG items. You've got a cosmetics brand, throw in an extra lip gloss or something like that with purchase. Not only is it a high perceived value, but it also exposes people to other products within your assortment. Maybe they go on and try it and they really like it and they go on to buy that product again at full price later. So easy, great alternative to a traditional discount or coupon. 

Drew Sanocki:

Number two, cash back rebates, bounce backs. What's that, Mike? 

Michael Epstein:

Rather than giving somebody $20 off or 20% off their purchase today, you could give it to them in the form of store credit, something that they have to use in the future. So not only does it cost you less because they're going to have to use it towards another product, which you're going to make margin on that product as well. It's not going to cost you as much as the amount that you're giving away, but it again encourages a subsequent purchase. They have to come back and buy from you again in order to redeem it. So the perceived value of that could be high. In a lot of cases, people might offer a higher cashback amount than they normally would for a discount because they know that that's going to be used towards another purchase and that's worth a lot. So cashback, we work with our friends at Fund do a lot on this. They have a great cashback app that again allows you to incentivize customers with a credit that can be used towards future purchases versus taking it as a discount on that one purchase.

Drew Sanocki:

And up on the screen. For those of you at home listening on your listening devices, we've got just an image of a brand called Durry. They're doing a cashback offer on some of their personal care products.

Michael Epstein:

They were able to offer 30% as a cashback offer, which is higher than they were offering as a discount because again, they knew that it was going to be used towards another purchase at a higher margin

Drew Sanocki:

And probably knew that not all of them would be used. So not there's breakage there, right?

Michael Epstein:

Absolutely.

Drew Sanocki:

Alright, what are we up to? Number three, exclusive access or product as a discount alternative.

Michael Epstein:

Yeah, so I love the example we've got on the screen from Jones Road cosmetics brand, and they did this last year around Black Friday. Rather than doing discounts, they introduced an exclusive product that was only available during that Black Friday period that they knew tons of customers wanted. And in a lot of ways, brands offer discounts and incentives over the Black Friday period because they need to just create a message that captures people's attention and gets them onto the site. In some ways, it's almost less about the discount amount, it's more about just capturing attention and getting people to come to your site and look and potentially buy something. And this was a great way to do it because they knew this would get people's attention. They were able to get people onto the site buying not just that product, but obviously browsing around the site and buying other products on the site at essentially full margin. They didn't offer any discount at all, but they still blew it out of the water by creating a lot of engagement and getting a lot of people to come to the site and buy something that felt special during that promotional period.

Drew Sanocki:

So for Jones Road, it was a mini miracle bomb set, kind of cute, very like, ah, very viral. I want to get my little mini bomb set. Number four on the list of top discount alternatives, bundles, buy more and save.

Michael Epstein:

Buy more and save. Yeah, so essentially tiered incentives that the incentive increases, but you have to spend more to get it. So the amount of profit dollars you're making on that order increases even if the discount percentage is a little bit higher. What do I mean? If you're offering 10% off when somebody spends a hundred dollars, but 20% off when somebody spends $250 or $500 on a percentage basis, yeah, it's a little bit higher. But in terms of the total dollars you are making on that order and total profit dollars you are making on that order by encouraging people to spend more, it's significantly better. So again, if you're Drew, you mentioned it at the beginning, different discount amounts to different types of customers. This would be an example of, look, if we can get you to up your A OV and spend more with us, we'll incentivize you to do so. We know that we're still going to make a bunch more money on you when you do it.

Drew Sanocki:

And the final, well actually, you got more than five man. I see more than five coming up. 

Michael Epstein:

I can't count. Apparently

Drew Sanocki:

This is number five.

Michael Epstein:

We got bonuses, we

Drew Sanocki:

Got bonuses, bonus, we'll call it bonuses. Yeah, this is number five on the list of discount alternatives, service upgrades. So here Mike, we're talking about express shipping when it doesn't actually cost you a whole lot or premium white glove delivery, just these kinds of service upgrades, gift wrapping, I might even throw in here. Just stuff that isn't a straight up coupon on the order and doesn't cost you a whole lot and the customer values in sort of like an outsized way versus what it's actually costing you.

Michael Epstein:

Totally. We did this at AutoAnything too. When it got close to Black Friday, we knew that customers just wanted to make sure it arrived on time and they were willing to pay more for that assurance. So by offering a free upgrade to two day air versus ground, which we were sending a lot of things that way anyway, giving them that assurance and that value that they felt like they were getting by the free upgrade of shipping, they were willing to pay essentially full price for those products. We didn't need to offer an additional discount on that product because the value was in the shipping upgrade. So again, it costs us a lot less to do that upgrade than it would've if we said we're going to take 10 or 20% off your purchase and it's still got that person to buy, especially when they're on a tight timeline trying to get something to arrive by Christmas. They're going to pay up for it if you can guarantee that it's going to get there.

Drew Sanocki:

I'm making a mental note to increase the price of all of our Black Friday direct mail campaigns next year

Michael Epstein:

When the people come in late,

Drew Sanocki:

Especially as the deadline approaches. Alright, and oh Mike, we thought we were done at five. Looks like we got a couple bonuses here. This

Michael Epstein:

One was your favorite. Drew, why don't you take this one?

Drew Sanocki:

We'll take it. Mike, you just steamed me. I just got steamed. Okay. Info products. I love info products because they cost you a little bit to put together a little bit of production value. Maybe you got to pay a writer, do some video work, but once you've got one, you can use that info product as an upsell. You can charge for it and ultimately you could even add it free with purchase as a discount alternative. We've got examples on the screen. A bar above is the company, it looks like they sell bar and cocktail mixology equipment. It's called mixology Mike. If you buy the incentive here is, like, you get 30% off any of our online courses. You might also, oh, so it must be like a course site. But the general concept is you could be buying physical goods and have, if you buy a certain amount, you get a free info product or you unlock the course on how to use our product. I’m also a big fan of info products don't require a whole lot to pull together and you can use them. I think customers really value a quality info product.

Michael Epstein:

Yeah, you're right, drew. This is Barware. They have courses that are separate items that they normally charge for. And this hit exactly what you were describing, which is the info course essentially has no cost. There's no cost of goods, so they can easily discount that aggressively or even include it for free as an incentive to buy the barware.

Drew Sanocki:

I bought some gardening stuff online the other day and they had this site, had you got an ebook on how to set up your whole homestead and have everything growing in various size yards. It's probably like a 20 page ebook. So that was kind of cool. Also encourages more use of their own products, but you get that. Get that for free with purchase.

Michael Epstein:

Totally. Well, that was our bonus idea. The last slide we've got here is really just more conceptually. So the concept of a discount ladder, which goes back to what you were describing at the beginning, drew, and just something that we really like to hammer home to, folks that we talk to and people that are listening. The concept of giving the right incentive to the right person at the right time. You don't need to necessarily give the most aggressive incentives to people that are your highest value customers and are already buying a lot from you or spending the most with you or have bought from you really recently versus those that are more defected, the one-time customers that you haven't seen in three or four or six months. And so potentially tailoring those incentives, which depending on how you run your Black Friday sale, for example, if you're pushing it out via email, maybe you want to push different incentives to different types of customer cohorts.

Or when you have your post-purchase incentives, same thing. You don't necessarily need to blast everybody who's made a purchase from you with, come back and take 20% off your next purchase, but maybe you push full price if they don't come back in the first 30 or 60 days. And then you start incrementally increasing incentives as they become less and less likely to take the action that you were looking for them to take. So this isn't specifically a coupon alternative tactic, but it's more of a strategy and a philosophy around how to use different discounts for different customer cohorts based on what you know about them and their behavior.

Drew Sanocki:

Love it. And just this general idea of increasing the perceived value of your incentive with the customer's decreasing likelihood of acting is, like, something good to keep in mind, easy to do with discounts, but as I hope we've conveyed in this podcast, you could do it with a bunch of other things too. So in summary, we talked about five ways to get around discounting, five discount alternatives and a couple bonus discount alternatives. When I got steamed, get creative, think outside the box, think beyond the percentage off. What will your customers value? Think of profits, not just revenue. The whole idea here is a discount off revenue really represents a big chunk of your profits. So you can get around it by working with some things that have high perceived value and don't actually cost the business that much. Mike talked at the end there about customizing your offers based on customer behavior.

In particular in database marketing. We like to go right to RFM, so recency of purchase, how soon the customers bought, how many times he or she has bought, and how much he or she has spent at your customer. Use those things to kind of dial in your discounting strategy. And as a bonus, this is what a second bonus in this, you got two bonuses here, focus on post-sale retention. So I think the more you get towards encouraging a second, third, and fourth purchase and not just focusing on a single interaction with the customer, the more cash you're going to drop to the bottom line and the more profitable your business will be. Love it. Love it. Alright, well thanks for joining us. This is Nerd Marketing. We talked today about Discount Alternatives. If you've got any questions or comments, leave them. Leave them in iTunes. Rate and review us and got anything else, Mike, Steen me. Steen me. Just remember to Steen us. If you all go to iTunes and just comment, steam me and give us a five star review. We will think up something to do about that other than confusing the hell out of the people at Apple who have to review those reviews. Alright, thanks everybody.

Announcer:

Thanks for listening to Nerd Marketing. Don't forget to check out all of the other great episodes, some of which include interviews with e-commerce Marketing Masters, working with Mr. Beast and Joe Rogan, plus Drew and Michael's experiences in private equity. Advice from VC firms on what they look for in investments and so much more like share, subscribe, and tune in every week for a new episode.

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