16 Dec The ROI of Targeted Incentives
Targeted marketing—offering the right incentive to the right consumer at the right time—has proven to be a sound economic investment. In fact, brands that reward their consumers with “just right” offers acquire and convert more consumers, use their marketing spend more efficiently and ultimately experience better ROI.
But how can you determine the appropriate incentive and assign accurate valuation? Have you ever thought about how, exactly, the return on investment math works for a targeted promotion versus a mass promotion? We have. And based on anecdotal evidence from our clients, we’ve created a data-driven use case that illustrates how efficient targeted incentives can be, especially if your goal is to jump-start or grow a customer loyalty program.
Let’s take a look at an A/B test designed by the marketing team at High Octane Coffee Company, a major global coffee brand. HOCC wanted to measure the ROI of targeted versus mass promotions. Ultimately, their goal was to acquire new “High Octane Rewards” loyalty program members, using a generous promotional offer as bait.
The marketing department’s total budget for the promotion was $100,000, which they spent evenly on the two A/B test segments. Based on historical data, the brand predicted that each new loyalty member, acquired through this one-time promotion, would spend an additional $10 on HOCC purchases throughout the coming year.
TEST A: Mass promotion
High Octane Coffee Company emailed a unique redemption code to a group of known customers who weren’t yet members of High Octane Rewards. As an incentive to join the program, every customer who registered for High Octane Rewards received $5.00 off their next purchase of bagged coffee.
High Octane Coffee normally retails for $7.00 per bag, making $5.00 off a truly rich offer. Nonetheless, the marketing team easily justified the promotional expense because High Octane Rewards members are known to spend an additional $10.00 more per year on average. Expecting a high response rate, the email was sent to 10,000 customers, or the $50,000 share of the budget for Test A.
Mass promotion results
The promotion, which lasted a month, was redeemed by 70 percent of the 10,000 recipients. As a result, the brand acquired 7,000 new loyalty program members and earned $70,000 in incremental revenue. Subtract the redemption liability of $35,000 and the net return on the marketing team’s investment is still $35,000.
Not too shabby, right?
Sorry, not so fast.
Unfortunately, according to post-campaign analysis, because the brand offered the same incentive to everyone, HOCC failed to acquire 3,000 customers who would have responded to an increased offer of $7.00 off per bag.
Despite the higher redemption liability, these customers still would have delivered a net positive return of $9,000 ($30,000 – $21,000 = $9,000), when factoring in the longer-term purchase behavior of High Octane Rewards members.
In addition, because the marketing team didn’t want to risk a lower response rate by decreasing the offer value, the promotion effectively subsidized a sub-group of customers* who would have responded to a lesser offer of $3.00 off per bag, to the tune of $14,000.**
TEST B: Targeted promotion
Starting with the same $50,000 budget, High Octane Coffee Company also launched a targeted promotion in conjunction with its mass promotion. Leveraging historical data from past campaigns, HOCC segmented its target audience to deliver the right incentive to the right customers. Rather than blindly delivering a $5.00 incentive to all 10,000 people, HOCC offered $3.00 off to the 3,000 consumers who were most likely to redeem its offer. Next, they offered a $5.00 incentive to the 4,000 consumers who were somewhat likely to redeem the offer. And finally, HOCC offered $7.00 off per bag to the 3,000 consumers who were least likely to redeem the offer.
Targeted Promotion Results
By delivering targeted offers, the brand acquired 100 percent of its target audience (10,000 customers) and spent its entire $50,000 redemption budget. However, in the long run HOCC earned $100,000 in incremental revenue. Subtract the redemption liability of $50,000 and the brand still netted out a total of $50,000. Ultimately, the net ROI was $15,000 more in the targeted promotion than it was with the mass promotion — a whopping 43 percent increase, in fact.
When you multiply the example above by the number of loyalty members or customers who shop your brand, you can see how the ROI of targeted incentives can be substantial. Yet all too often, brands know they should send targeted offers to segmented audiences, but don’t. Why is that? What brands tell us most often is that their loyalty/customer engagement software lacks the flexibility they desire.
Verify Brand’s system is extremely flexible, allowing your marketing team to adjust the value and “rules” of your offers (e.g., time frame, new member versus existing member, multi-use versus single use, etc.) so you can offer rewards tailored to fit any type or level of segmentation strategy—even after your campaign is up and running and your codes are in market! For example, the HOCC could have easily extended either campaign, changed the value of the offer or even integrated a social media sharing component, depending on the offer’s traction with its various customer segments.
Integration is easy., adn the Verify Platform does all of the heavy lifting, translating your system’s messages into a universal language. Plus, it can seamlessly connect with mobile apps, websites, social media, and other existing applications.
In fact, with our rules-based software, you and your marketing team can manage targeted promotions on the fly, in real time, maximizing every dollar of your marketing spend for incredible ROI. Contact us to find out how.
* 7,000 redeemers on average would have responded to a $3 offer value.
** $14,000 is based on the difference of the offer values ($5 – $3) times the number of responses (7,000).