Podcast 02: How to Get Started with Discount Ladders

I walk you through how to set-up and run effective discount ladders. I zero in on using these ladders to create a killer eCommerce retention program in just four easy steps.

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Highlights

  • Discount ladders can help you retain customers
  • There are four steps to setting up effective discount ladders
  • Step 1: determine your discount intervals
  • Step 2: Set your promotions
  • Step 3: Start testing monhtly
  • Step 4: identify your most profitable offers

Links / Resources

  • Continue learning about Discount Ladders in Episode 1 (Intro to Discount Ladders) and Episode 3 (A Discount Ladder Case Study).
  • If you plan on implementing a discount ladder, you’ll also probably be interested in what I have to say about Dynamic Ascending Offers.
  • To learn more about data-driven strategies that grow ecommerce businesses, just sign up for my mailing list.

Transcript

Prefer to read rather than listen to the podcast episode? No problem, you’ll find a text transcribe below, and you can also download it for later.

Read the Transcript

Leave a Comment:

Jeff Schultz says

Hi Drew – Great episodes so far. Keep up the good work. Nerding out on eCommerce analytics and email marketing is one of my favorite things to do.

Have you ever implemented this concept using gift cards? I like the idea of giving store credit versus a discount. I think it feels more like an unearned gift to the customer and doesn’t deteriorate the value/pricing of products in their minds. I’ve heard you talk about that before in other contexts. Do you think that is still a valid tactic/argument in a customer retention/win back series?

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Drew Sanocki says

Jeff — I have indeed, and it works. In the next episode I do a case study on how I tested a couple discount ladders (gift cards, % off, a freebie) and how each worked. The gift cards didn’t perform as well, but a retailer might want to go with them for other brand reasons. I think it’s a great idea, one I should have mentioned.

Thanks for the comment!

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Jeremy Pollack says

Does it count as a unique comment if it is from another Jeremy? 🙂

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Jeremy says

Ha.

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Kevin Stecko says

Hey Drew,

Any chance you could share how you do you histograms?

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Drew Sanocki says

I will count that as unique, yes.

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Drew Sanocki says

Will do. Upcoming episode.

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Mikko Horneman says

I was wondering the same thing. Great if we can get a how to guide.

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brad bernhart says

Hey Drew.

I’m part way through finding my appropriate intervals. Even after the histogram analysis and graphing the results, I’m not sure where to make the cut offs. I have graphs for 1st to 2nd purchase, 2nd to 3rd purchase, and 3rd to 4th purchases. Here’s a picture of the graph for time between 1st and 2nd purchases for my customers…

Any suggestion on where to set the first discount?

I was expecting to see some humps in my graph so I could set the first discount right after that. That’s not really what I’m seeing. So… would you pick some percentage that I’m happy with and set to that?

Even if I wait 90 days to offer the first discount, only about 50% of people who will buy twice have actually done so, therefore I am giving a coupon to a bunch of people who would have purchased anyways.

I guess it is a trade off right? I prematurely give a discount to customers that would have ordered anyways, but hopefully I more than offset that by getting those people that would NOT have made a second purchase to buy again.

Am I thinking about this correctly?

Thanks,

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brad bernhart says

…and here’s a little more information about my situation:
– over the period of time I used to gather this data, I had 1607 people order only once, and I had 345 people that ordered at least twice.
– My average order size is about $65 and for the sake of conversation, let’s say my profit on each sale is 50% of the sale (so $32.50)

If the average discount that someone uses is 10%, then the average “cost of the promotion” is $6.50 for every person that would have purchased a second time anyways. If that’s half of the people on the list, then this promotion cost me $6.50*345/2 which is about $1120.

So… if I profit $32.50 on each average sale, In order to break even with this discount ladder, I have to convince 35 of my customers at one time or another to place one more order than they otherwise would have. In the time frame I used to get the numbers in my chart, that’s only 1.8% of the customers.

That sounds pretty doable to me. I think I would pick up those 35 buyers pretty easily. Do you have any stats on what percentage of customers you get to make that extra purchase?

I know that was just a lot of info. I was kind of going through it in my head as I wrote it. Do you see any error in my logic?

Thanks a ton Drew.

-been loving the podcasts and the blog posts and am planning on implementing everything you’ve talked about so far! Sorry for the long wind!

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Drew Sanocki says

Very do-able. You are on the right track, but I wouldn’t over think it. The answer is just to test. I’d say aim for getting 80% instead of 50% . . . bust out a ladder there, then test it against a ladder where you move up the dates. Easy to do in Klaviyo, Rejoiner, etc.

Over time you’ll see one is generating higher revenue / subscriber than the other. Then lock that one in.

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brad bernhart says

Thanks for the feedback Drew. To make sure I’m picking up what your laying down, when you say “aim for getting 80%” you mean wait until about 80% of return customers have purchased, then start the ladder right?

I kind of like the looks of this spot here (see attached image) It lets about 75% of people reorder, then the ladder starts. Most of the other 25% left are people who buy at Christmas each year anyways.

If I start with this for a trial… my ladder doesn’t start until 6 or 7 months out.

Thanks,

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brad bernhart says

Drew.

Do you typically set an expiration on the discount codes you send out in these emails?

Also, do you know of any easy(ish) way to create unique discount codes in Klaviyo when running a Shopify site without the Pro plan? There’s a somewhat clunky work around with Mailchimp, but not sure about Klaviyo.

Thanks again.

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Drew Sanocki says

YES. That’s exactly how it should look. Kinda cool, huh? Wait until you see the ROI on this.

If you jump the gun and go for 70% or even 50%, then you are subsidizing more purchases, sooner.

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Drew Sanocki says

Yes and no I do not. I hit the same wall at Karmaloop and had to have IT build something.

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brad bernhart says

Perfect. Thanks.

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Jeremy says

Hey @drewsanocki:disqus , when carving out the people who haven’t purchased in 30, 60, 90, I’m thinking there would be overlap. Where you might send 2 different offers to the same person who didn’t purchase in the past 30 AND the past 60.

Would the way to carve them out be 3 segments :
1) No purchase in past 30 days
2) No purchase in past 31-60 days
3) No purchase in past 61-90 days

I’m attempting carve out the segments in Klaviyo.

Am I thinking about this correctly?

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Drew Sanocki says

That’s exactly what you should do Jeremy. And BTW I haven’t forgotten about your latency question. If you are ok with it, send me an export of your order table — I’ll do it.

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Jeremy says

Hey thanks! I’ll send it over.

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