Discount Optimization Testing Increases Direct Mail ROI | Retail
Testing matrix identifies sweet spot offer, boosts revenue
A home furnishings retailer was regularly mailing discount coupons to its house file. The challenge was determining whether the discounts they were offering were optimal for achieving the most in-store traffic and purchases without sacrificing profits.
They understood that the largest expense related to a retail direct mail campaign like theirs was the discount which could be as much as three times the cost of the mailing. In fact, discount rates fluctuated between 20% - 50% in different dollar purchase levels. What’s more, the client had no proof their discount mailings maximized business.
One of the benefits of direct mail is the ability to track results to help improve ROI. With that in mind, RRD Marketing Solutions suggested introducing a six-tiered discount matrix test using our proprietary ProteusJetSM variable inkjet color imaging. With one of the most robust variable data print platforms in the industry, we could easily and cost-effectively test variable offers within multiple purchase levels all within the same print run.
A testing matrix was developed with customers assigned to one of six spend groups. The goal was to incentivize customers to spend more with each visit. Each group was mailed a rollout quantity using the discount offer the retailer assumed customers would respond to. Then three to four additional discount offers were sent in test quantities. In total, 28 different discount offers were tested within the same mailing.
Revenues improved by 68% (over $1 million)
Minimal 2.8% basis point increase in the discount rate
Program ROI doubled
When the math was all in, the home furnishings retailer found that implementing the optimal discounts, as determined by the test, would help the retailer to improve revenues by 68%, or over $1 million dollars. This improvement in revenue was achieved with only a 2.8% basis point increase in the discount rate. Implementing the new discount offers would result in the program ROI jumping from 25.3% to 50.2%.