The evidence for the ability of discount coupons and cashback offers to drive increased purchasing activity in consumer packaged goods (CPG) products is well documented, with numerous studies showing that coupon users buy more product, more often than non coupon users.
But how much of a discount should brands provide consumers in order to generate this activity? There is a fine balancing act between providing consumers with a discount that is considered a more than fair value that drives them to increase their overall spend (The coupon pays for itself…) and subsidizing what would have been normal consumer purchasing behaviour with excessive discounts that might even contribute to lowering the perceived value of the brand.
We know that there is an almost linear relationship between the coupon discount amount (Or percentage) and the amount of product sold, but what is the sweet spot discount amount that motivates consumers without providing so much of a discount that it hurts the brand’s margins.
Below we analyze a number of factors CPG Brands should consider when determining the discount amount for their coupons or cashback offers:
- Coupon campaign objectives:
Consider the specific marketing objectives of the coupon campaign. If the goal is to encourage trial or increase sales volume, a higher discount amount will be more effective. If the focus is on maintaining awareness, reach and visibility with existing customers and encouraging repeat purchases, then perhaps a smaller discount may suffice. The more aggressive the offer the more activity it will generate.
- Consumer behavior and perception:
Understanding our consumer’s preferences and behaviours, purchasing patterns and their response to coupons and promotions is key. Analyzing the data from prior coupon campaigns is extremely useful as it provides us with facts about what offers generated what behaviours. This information can help determine an attractive discount that motivates consumers to purchase the product without being excessive.
- Product costs, margins and pricing strategy :
CPG brands should understand the costs associated with the manufacturing, packaging, and distribution of their products very well. This knowledge will help ensure that the coupon discount amount is financially feasible and aligns with the company’s overall budget. They also need to ensure that the discount offered does not significantly erode their profit margins or devalue their products. Selling at ‘below cost’ is never a good strategy and should be avoided by brands.
- Brand promotional offers live in market:
Brands need to be more strategic about the promotional offers they make available in the market simultaneously. We have seen too many examples where a brand is offering PC Optimum Points, printed coupons and cashback offers in the same week. The coupon blog world will share these opportunities and consumers often get products for free or even make money!. Brands should seek to have no more than one aggressive promotional initiative live in market at one time.
- Category Competitor analysis:
It’s important to assess the pricing and promotional strategies of competitors. Understanding the prevailing market discounts and offers will help CPG brands position their discount coupons competitively while providing value to customers.
- New customer long-term value:
Consider the long-term value of gaining new customers or increasing customer loyalty through the discount coupon campaign. Offering a reasonable discount that allows customers to experience the product’s value can lead to future sales and brand loyalty. Smart CPG brands think of coupon and cashback offer discounts as part of their ‘New Customer Acquisition‘ strategy since so many coupon users can be new customers to the brand. Assessed in this manner a coupon discount can be considered a tiny amount to introduce a potential new long term customer to the brand.
- Coupon campaign testing and analysis:
Although challenging it can be beneficial to conduct A/B testing with different coupon discount amounts to gauge customer response and determine the optimal level. Analyze the results and adjust the discount amount based on the data and customer feedback. This type of offer testing can be done much more easily nowadays with the use of web based technology. Different coupon offers can be emailed to equivalent groups and their behaviour can be measured in real time. webSaver can help you execute coupon campaigns with A/B coupon offer testing.
Remember, the coupon or cashback offer discount amount should strike a balance between attracting customers, maintaining profitability, and growing the brand. Regular monitoring and evaluation of the campaign’s performance will help fine-tune the strategy over time.
Work with the experts at webSaver to execute a coupon campaign that generates real value for your brand. Having worked with 90% of Canada’s leading CPG food brands and with over 150 Million coupons issued in the past 10 years we know how coupons can be put to work for your brand to deliver results.