Discounts or Dollars: What Matters More in Digital Promotions?
Last week we explored how the required purchase quantity can impact the way consumers interact with digital promotions. Today, we’re diving deeper on the single most impactful variable for convincing consumers to redeem a promotion: the effective discount.
As a follow-up to our recently released 2022 Digital Promotions Report, we’ll be examining effective discount and why consumers favor discount percentages over dollars saved. Keep reading to uncover the details, and for more information on how you can create high-impact promotions that move shoppers from engagement to redemption, download the full report.
Effective Discount’s Influence on Promotion Redemption
While a promotion’s offer value is directly linked its effective discount, they convey different things in the mind of the consumer. Offer value is literally the dollar amount listed on a coupon—the total amount of savings. On the other hand, effective discount is the percentage of savings relative to the full value of the product. For example, if we consider a coupon for $1 off a $5 product, the offer value would be $1 and the effective discount would be 20%.
Effective discount comes into play in promotion strategy in a few different ways. Based on more than 100,000 promotional campaigns over a three-year period, our results suggest that consumers understand the relationship between offer value, required purchase quantity and the price of the promoted product. Unsurprisingly, shopper interest increases for promotions that offer higher effective discounts. Once consumers have activated the offer, a compelling effective discount—not merely the raw dollars of the offer value—is the most impactful way for brands to convince consumers to redeem.
When designing promotions, advertisers have to strike a balance between an effective discount that is significant enough to convince the consumer to redeem their offer while still being efficient enough for the advertiser to run. In our report, we recommend that brands test and learn to understand the minimum effective discount needed to persuade consumers to activate and redeem a promotion. The data shows a steep increase in activation for effective discounts over 20%, but it takes more to motivate consumers to redeem an offer. Effective discounts of 30% or more have the strongest influence on redemption.
Our research also shows that activation rates increase steeply as effective discounts climb from 20% to 40% but continue at a slower pace at 50% and higher. When considering product category, items with higher price tags require higher effective discounts to influence activation—again, this points to consumers’ perception of the relationship between the cost of a product and the value that a discount represents. If your brand is in a higher-cost category, it may take more testing and learning to discover the right effective discount for your consumers.
Ready to uncover more ways to boost performance of your next digital promotion campaign? Contact our team at [email protected] for expert advice on how to get started.