How to tell if your discounts & coupons are making you money or losing you money

This comes up over and over again with various clients.

They do a special promotion – a discount or coupon or some such thing – and it increases sales on the promotion. So they get excited and start turning every promotion into a discount promotion. Hey it worked once it’ll work again, right?

Here’s the funny thing that happens, yes, their “response” is higher on the promotion.

But their profits start to tank.

And when they try to come back from the brink and do a strong full price promotion – response sucks.

For two reasons:

1. The big discounts moved demand forward. People who were putting off a purchase were motivated by the discount. Think of Cash For Clunkers, the big government discount for car buyers, at first it looked like it “generated” an extra 360,000 car sales. Turns out it just cannibalized future sales and the months after the program ended saw a missing 360,000 car sales.

2. People got used to the idea of a major discount and pushed back their purchases until the next promotion. Why pay full price when they know a 35% or 50% discount is usually right around the corner.

By the time the business owner notices the problem they’ve inadvertently trained their email & mailing lists to look for the discount.

I’ve seen this happen with a client who started doing big quarterly promotions on all their products – response was huge the first time. Great the second time. And good the third time – but in the between the sales started to tank. And it became harder and harder to sell products without a major discount.

So before you over-coupon or over-discount your business to death read this excellent article from Jim Novo.

Jim is one of the best resources for understanding and intelligently applying customer data to increase your profits.  His book, Drilling Down, is an absolute must-devour book for any serious marketer. And he just explained in detail how to tell When does your customer need a coupon?

I highly recommend you check it out.

John Newtson