The Importance of Repeat Purchases in Discount Strategies

– A/B testing showed that a 10% discount resulted in more conversions than a 20% discount.
– However, it is important to consider the long-term impact and whether customers who received the 10% or 20% discount will come back to make additional purchases.
– The perceived value of a purchase is tied to the happiness of the customer, and offering a larger discount on the first purchase can increase the likelihood of repeat purchases.The key action item is to consider the follow-up impact and downstream fallout of a single variable test, particularly in terms of the repeat purchase rate. Discounting the first purchase for a new customer can be effective in increasing the perceived value and likelihood of repeat purchases.So, I saw a post on Reddit today that was talking about a few posts made the other day about an A/B test with a 10% off vs. a 20% off and how the 10% came out ahead. The second part of those results wasn’t discussed though. Did those who got the 20% or the 10% come back and buy again? Was the 10% or 20% off only provided to people who have never purchased before? A lot of the time, we isolate variables without looking at the compounding behavioral nature of their intended impact. So, it goes something like this: We split tested 10% vs. 20% and more people converted at 10%, so we can say that we made the company an additional 10% by forgoing the 20% option. Nice claim, right? Of course, it is, but assuming these were all first-time customers, and assuming the shipping costs were the exact same per customer, then we find ourselves in a situation where the only thing that matters is perceived value for the customer. Getting 10% more on one purchase for someone who never comes back is not the same as giving 20% off for someone who will come back and shop again. But Jon, how do we know what works better? How do we know who will come back? This is the second part of the test, but we do have a starting point. Psychologically speaking, the happiness of a purchase is tied to the perceived value of the good. This goes one of a few ways. I paid X amount and I think it was fair. I paid X amount and I would have paid more. I paid X amount and it was overpriced. The sweet spot is the second one. The larger the discount on the first purchase, the higher the percentage of time you’re going to get the second answer and not the third. I’ve noticed it from my own behaviors of getting a deal on something, Chubbies swim suits are a good example. I’m all about a bargain, but the quality of their goods and the amount of use I get out of them far outweighs the price, even at full price. My perceived value is that their pricing is fair, if I find a discount, I feel like I’m winning. So when we’re running these little A/B tests all my CRO and email, and ads people. You have to consider the follow up impact of a single variable test and the down stream fallout. Run the numbers in a spreadsheet. Or make a copy of this one and run them: turns out that if you can get a 7% bump in repeat purchase, you actually make more by discounting multiple times. Turns out the only thing that matters is getting your repeat purchase rate up, the vast majority of time this more than accounts for your margins. I’m still big on discounting the first purchase for a new customer. Know your numbers.

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