Incentives can be a powerful tool to overcome a customer’s initial reluctance to go ahead with a sale. In marketing they call this reluctance to buy, “friction”. An example of Friction would be customer confusion about your product or service. The layout of your web page may be confusing or hard to read. It may be difficult for potential customers to readily understand the benefits they will receive from your offering. Another source of friction may be the perceived effort it will take to use your product or service. A third example of friction is fear. Potential customers may worry that your product won’t have the features they really need. They may be afraid that they won’t be able to get help if they’re having difficulties. The list of potential sources of friction can be endless. There is no way you can completely eliminate them. The only thing you can do is try to minimize them.
With incentives your objective is to overcome the friction preventing a sale. Your goal is to tip the scales of emotion in the customer’s mind so that they proceed with it. To maximize the effectiveness of your incentives it is important to place them as close as possible to sources of friction on your web page. You also want the incentive to quickly catch the customer’s attention before they abandon your offering.
There are a myriad of different incentives you can offer such as; discounts, free gifts, free shipping, a bonus, a special reward or a special offer. The trick is to figure out what incentive is most effective at getting customers to buy your product or service. To be effective, an incentive MUST have intrinsic appeal. As a result, one of the first things you need to figure out is the relative appeal of every incentive you are considering using. One way to determine this is to use either an informal or formal focus group to determine the “Perceived Value” of each of your incentive options. The higher the perceived value of an incentive, the better chance it will have in increasing sales.
Each incentive has a cost. This needs to be considered when you figure out what incentive program will give you the most bang for your buck. You find this out by calculating and comparing the “Perceived Value Differentials” of all of your incentive options. The Perceived Value Differential is calculated by subtracting the Cost from the Perceived Value of the Incentive.
Perceived Value Differential = Perceived Value of the Incentive – Cost of the Incentive
The most important thing you need to know when offering incentives is how they will effect your profits. I’m sure you would get almost a hundred percent conversion if you offered a brand new car to everyone that subscribed to your newsletter offering. Despite its high conversion rate, this incentive would be highly unprofitable. Since profit is what you are in business for, you’ll need to determine which incentive will generate the most profit.
There are two steps you must take when you are determining how profitable a particular incentive will be. The first step is to conduct a marketing test with and without the incentive for the same period of time. After completing each test, you calculate how many more sales you made using the incentive. By multiplying the Number of Increased Sales times the Sales Price you can then determine the “Net Profit Impact from the Incentive”.
Net Profit Impact from the Incentive = (Increased Sales By Using Incentive) X (Sales Price)
The cost of an incentive can have a significant impact your profits. Therefore, the Cost needs to be subtracted from the Net Profit Impact From the Incentive to determine how profitable each incentive will be. When you subtract the Cost from the Net Profit Impact From the Incentive you are calculating the “Return on Incentive”
Return on Incentive = Net Profit Impact from the Incentive – Net Delivered Cost of the Incentive
Once you’ve calculated the “Return on Incentive” for all your potential incentives you then compare them to determine which one will generate the highest profit.
Incentive Return on Incentive Result
Incentive A (-$1,200) Not Profitable
Incentive B $5,000 Ideal Incentive
Incentive C $1,200 Less Profitable
It is important to measure both the short-term and long-term “Return on Incentive”. Sometimes, an incentive will be unprofitable short-term but more profitable long-term. You figure the long-term Return on Incentive by factoring in the lifetime value of all the customers that were added due to the incentive.
Long-term ROI = NPI + (LV)(IC) – NCI
ROI = Return on Incentive
NPI = Net Profit Impact from the Incentive
LV = Lifetime Value of Customer
IC = Increased Number of Customers Due to Incentive
NCI = Net Delivered Cost of the Incentive
In summary, creating an effective incentive marketing strategy requires constant testing. Don’t give up if your first incentive offer doesn’t achieve the results you were expecting. It often takes several attempts before you arrive at point where you have an ideal incentive. Another important take away is that Return on Incentive is much more important than conversion rates when considering profitability of a particular incentive marketing strategy. Lastly, using Perceived Value Differentials is a good way to select the most promising incentives to initially test.
In order to get more in-depth information about incentives and anything to do with marketing I would strongly recommend that you check out marketingexperiments.com. These folks really know what they are talking about. In my book they are the go-to source for marketing information. Subscribing to this website is free. When you become a subscriber you’ll get access to $20 million in optimization research, live web clinics, research summaries and spreadsheet analysis tools.
One last and very important item you need to examine, is how you present your web marketing on the internet. Getting your product or service noticed on the worldwide web can be a daunting task. Oftentimes, your marketing campaign can get buried in the blizzard of information flying down the internet highway. WebTrialOffers.com offers a solution to this problem. Our listing site caters to users who are actively searching for internet promotions. These people are motivated buyers, selecting from categories of products or services, entertainment options and website content.
Now you might be saying to yourself, if only I could only get a chance to show people how my product or service will greatly enhance their life. I know they’d come back for more. Once they tried it, they will become a long term customer. Well if this is really true, put together a web trial offer. Write a compelling sales pitch. Add some pictures. If a movie would better present the benefits of your product or service, include that too. You can also offer discount coupons for first time customers. After filling out our easy to use template, and putting your listing on WebTrialOffers.com, get ready to fill the vastly increased orders that will be coming your way! So if you have a website, a blog, a product, a service or if you are offering entertainment options, you need to seriously consider WebTrialOffers.com.