It’s no secret that deals and promotions help bring in more sales. However, it’s also no secret that creating the optimal promotion can be challenging. Giving too much away on a promotion can significantly hurt profit margins, but customers are less willing to go out of their way for a smaller deal. So what does it take to create the perfect deal without breaking the bank? How do you find the sweet spot between giving too little and too much?
Earlier this year, the Fivestars research team conducted a study to understand the types of rewards that appeal most and least to customers, and we’re excited to share the results with you. In this study, Fivestars customers sorted through 43 different deals and categorized them based on how attractive the deals are to them.1
Overall, we discovered that in order for deals to be more impactful at a greater scale, they need to be creatively structured to account for diverse customer preferences.
Here are our key findings:
Percentage based promotions resonate with customers
- Percentage based deals are proving more attractive to customers than dollar based deals. Even when evaluating dollar based deals, customers automatically calculate the rough percentage discounts of these deals. When the percentage is difficult to calculate (i.e. $5 off your $35+ purchase), a deal may appear less attractive.
- The minimum value for a percentage based deal to stand out to customers is 20%. Promotions with discounts above 20% were collectively seen as more attractive by over 85% of customers.
- Percentage based deals resonate most when the discount can be used over a wide range of items (i.e. 50% off any entree or 30% off 1 regular price item) relative to a predetermined item (i.e. 20% off olive oil and vinegars).
Minimum purchase requirements make deals less appealing to customers
- Minimum purchase requirements (i.e. Get $25 off your $150 purchase or Free item with $15 spend) pose a difficult hurdle to many customers, as they often predict their total purchase value to be less than minimum requirements.
The strongest predictor for whether customers will go out of their way to use a promotion is how well the promotion aligns with their personal preferences
- Deals like 25% off any drink were seen as attractive by 93% of customers because this deal gave customers the flexibility to choose the discounted item. Giving customers this option increases the chance that the deal matches their preferences.
The next time you’re creating a promotion, consider removing minimum purchase requirements and using clear percentage discounts that can be applied to a wide range of items. Remember, you don’t have to give away a lot for your promotion to be attractive. Instead, keep flexibility central to your deals by allowing customers to choose their favorite items. This rule is especially important if you’re using promotions to attract new customers.
At Fivestars, we are always committed to helping local businesses build stronger relationships with their customers. As we continue to discover more insights, we’ll share additional findings – so stay tuned!
- Fivestars User Experience Research, “Understanding Rewards Card Sorting,” blinded study with Fivestars customers, Feb 2018