Are online shoppers addicted to deals?

Discussion
Dec 01, 2014

Tying its release to Cyber Monday, Coherent Path issued research showing that new online customers whose first transaction involves a discount or special offer are 50 percent less likely to return to make a second purchase.

The research also found:

  • Customers who visit an e-commerce site for the first time and make a purchase at full price are more than twice as likely to make a second visit;
  • Returning customers will spend 150 percent more per visit versus those who are initially motivated by a sale;
  • Over the lifetime of the relationship, a customer whose first interaction with a retailer does not involve a discount is worth at least 2.5 times more than a customer who responds to a short-term discount or promotion.

Using data compiled primarily from client’s e-commerce sites, Coherent Path compared consumer purchases based on various discounts over a period of time.

"Our data shows that when price plays a significant role in the first-time purchase with a retailer, even online, the chance of them becoming a long-term and loyal customer can be low," said Dr. Greg Leibon, CTO of Coherent Path and a resident scholar in mathematics at Dartmouth College.

Coherent Path said strong order fulfillment, better follow-up after the sale, and additional promotions to move excess stock are all ways to increase shopping frequency and value. The report also said personalization can be used to "guide new Cyber Monday shoppers towards the more loyal and valuable behaviors exhibited by their very best customers."

Have online customers been trained to expect discounts more than offline customers? Should online stores attempt to wean their customers off discounts?

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13 Comments on "Are online shoppers addicted to deals?"

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Tony Orlando
BrainTrust

Why should online be any different than brick-and-mortar stores? As many consumers shop for heavy discounts everywhere. This mentality has dramatically increased over the years, with a bad economy and stores fighting each other for sales. The expectation of a great deal is now the norm, so for the few who buy online at regular price or at a brick-and-mortar stores, make sure you take really good care of them, since they contribute favorably to your bottom line. Weaning the hardcore shopper off the discounts will drive them somewhere else, no matter what you do, as this is how many shop today. The key is to offer a great deal and still make money, which is possible, if the buyers know how to negotiate a great deal. That is a win-win.

Gene Hoffman
Guest
Gene Hoffman
2 years 10 months ago

In my opinion, online customers are being trained to expect large discounts more than offline customers. But it’s almost a tie. These promotional offerings are presented everywhere and have an increasing price-oriented following over promoting brands effectively. In that sense, I am reminded of what Mae West once said about dual vacillating actions, “Between two evils I always like to take the one that I have never tried before.”

Should online stores attempt to wean their customers off discounts? Of course, if they knew how to in today’s world.

Steve Montgomery
BrainTrust

Large discounts appear to be expected whether it is online or at brick-and-mortar stores. Consumers have come to expect it. 40 percent off is the new 20 percent.

It is logical that the value of a first time customer who made a full-price purchase is higher. It means they like what the retailer is selling. A person who bought a single item is likely someone who simply wanted that item.

Joel Rubinson
BrainTrust

Some truth but not as simple as this. In favor of this finding is a study I remember being presented that showed in CPG, people have a preference for how they buy something. For example, if they trial a new product via a display and price-off, they are more likely to repeat purchase that way. On the other hand, my shopper work finds that people have different shopper strategies for different categories. You might be a functional planner for American cheese slices but an explorer for artisan cheeses. Hence, the retailer who sells lots of different things will find that attracting a shopper on a big deal can result in full-price purchases in different categories.

Gene Detroyer
BrainTrust

This is an interesting topic. It reflects the entire problem with the Groupon business model. When someone first experiences a less-than-normal price, that becomes their new benchmark. This is contrary to the sustainable competitive advantage that online retailers have.

Online is all about convenience, choice and customer service. The customer they want to attract must also be tuned into those desires. (BTW, convenience equals time and time is money.)

Ralph Jacobson
BrainTrust

To answer the headline’s question: “Yes.” This is a difficult habit to break now that merchants have built up the expectation for great deals. And until our culture migrates away from wanting deep discounts (and why would that ever happen?), merchants will need to raise the bar in their promotions to capture the attention of their target audiences.

Ken Lonyai
BrainTrust

While I did get an A in Psych 101 back in college, it doesn’t take that training to believe this data. People that price shop have very little loyalty, except to hanging on to their money. When a retailer plays into the discount mentality, they reinforce price shopping (and probably showrooming behavior), driving price-based sales. People are people and I believe they will essentially do the same online or off, it’s just that to date online discounting is seemingly more prevalent.

It’s exactly why I shake my head when I hear that the future of retail is location-based promotions (AKA discounts), targeting a shopper’s mobile device in-store. That practice is training consumers to buy at a physical store based on discount offers, and negates other value-ads that a store can use to maintain prices and possibly even charge premiums for.

Tom Redd
Guest

Duh—of course they are. They want payback for finding the retailer online and risking online payment and delivery.

Soon this will all level out and retailers need something else to make the sale. What is that? Not even Amazon knows. They have so many features added to the Prime service that they aren’t sure what is next.

I estimate that the next step will follow the personal service approach—like http://www.trunkclub.com.

We will have http://www.garageclub.com for DIY and http://www.kitchenclub.com for the family cooks.

The clubs track what you own and how to use it. Builds relationships and locks in on loyalty.

Peter Charness
BrainTrust

Good luck to anyone who thinks they can change to an EDLP during these major sales events. The clicks went to the bargains.

Richard Wakeham
Guest
Richard Wakeham
2 years 10 months ago

So far not one person here has questioned the validity of the interpretation of the data. In order to keep first time buyers, maybe the retail outlet should make them buy their first product(s) at full retail? I think Amazon, Overstock, Alibaba, etc have proved that ongoing discounts create and keep new customers. Since omnichannel continues to gain popularity, was it included in the data? What is considered high value? Sorry, I’m just not seeing any logic in the whole premise.

Naomi K. Shapiro
Guest
Naomi K. Shapiro
2 years 10 months ago

These are the observations, but it would be much more important to understand WHY? e.g. paying full price makes a consumer more respectful of the retailer or what?

  • Customers who visit an e-commerce site for the first time and make a purchase at full price are more than twice as likely to make a second visit;
  • Returning customers will spend 150 percent more per visit versus those who are initially motivated by a sale;
  • Over the lifetime of the relationship, a customer whose first interaction with a retailer does not involve a discount is worth at least 2.5 times more than a customer who responds to a short-term discount or promotion.

“Our data shows that when (“low”?) price plays a significant role in the first-time purchase with a retailer, even online, the chance of them becoming a long-term and loyal customer can be low.”

gordon arnold
Guest

The e-consumer also wants free shipping and no tax, free delivery to anywhere in three days or less. Less support for these anticipated attributes is yielding slow market expansion and smaller sales.

Arie Shpanya
Guest

I think that online customers have definitely been trained to expect discounts. Amazon has had a big part in this training with its incredibly low prices on most products (and many prices are strike through with an original price for reference). That is the whole point of showrooming: shoppers experience products in store and buy them online for cheaper.

I think that the rise of webrooming (looking up online, buying in-store) is proof that in-store shoppers are hopping on the deal bandwagon.

I don’t think that trying to wean customers off discounts would work out so well. They are used to deals and sales are often what gets them back in the virtual or actual door. I think that getting more customers to return and buy full priced items would require more added value. Free gifts and free shipping could help incentivize purchases that have a higher profit margin.

Even as the economy improves, shoppers remain price sensitive. Every year a few retailers get in trouble for increasing prices right before Black Friday so that their discounts seem better. In the age of price transparency, when there are so many price comparison apps, it takes significant effort to justify a premium.

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