Why there is no such thing as an “average” response rate - Part 1

Frequently, clients have asked us what kind of response / redemption rate they should expect from a marketing campaign…but the answer is truly “unknown.”

Back in the 1970’s, a lot of industry press came out with a statement that an average response was 2%. Unfortunately, that statement has stuck around like the dirty gum on the bottom of the floor of a public bus…it gets plenty of exposure, lots of people see it, but no one bothers to clean it up!

The truth is that response / redemption rates are impacted by a wide variety of factors that help to drive results up or down. Here are just a few dynamic drivers to be aware of.

Price Point: How much does the product / service being offered cost? The higher the price point, the lower the response rate…the lower the price point, the higher the response rate. This is simple economics.

Offer: How “hard” or “soft” is the offer? A “hard” offer is very straight forward, with little or no incentive to purchase other than the product itself (e.g., if you want to make a purchase, send me an order and when your check clears, I’ll ship it to you). The harder the offer, the lower the response rate. A “soft” offer, on the other hand, has lots of frills (e.g., a sweepstakes, a free trial, money back guarantee, free shipping, etc.) to motivate the consumer to purchase, and inevitably drives a higher response rate.

Value: One of the components of an offer is the perceived value of that offer. A coupon of $0.25 is half the perceived value of a $0.50 coupon…unless the $0.25 coupon is good against an item worth only $1.00 and the $0.50 coupon is good against an item worth $5.00. But that is only the face value of the coupon itself…and for an item that sells for $1.00, a lot of consumers won’t bother with the coupon…but will redeem a coupon against the higher priced product.

Value of the offer is one thing…the consumer’s perception of that value is something else. If presented with a coupon good against a product that the consumer intends to buy anyway, redemption may very well be high…but the marketer’s objective of getting new customers to try the product may not be achieved…with the net result being a simple reduction in margin from sales cannibalization. A higher coupon value will be needed in order to convince someone who is already buying a competitive product to switch allegiance. And in that case, the coupon really needs to be delivered to a household not containing an already known customer.

Value is also something that a lot of Americans unfortunately have difficulty calculating…just test a percentage off offer against a comparable dollar off offer…the dollar off offer will win almost every time:

20% off a minimum purchase of $50 = $10 off = $40 sale $10 off a minimum purchase of $50 = $10 off = $40 sale

Finally, value is also tied to demand. There are several types of demand:

• Guaranteed delivery on a product in high demand, but short supply (e.g., the short supply of Wii gaming systems in its first Christmas season)

• A product in strong supply, but with a faulty reputation, will cause demand to go down, making it harder to generate a response (looking back at history, would you want to have been someone driving an Edsel?)

• A product in strong supply and a low cost makes it harder to sell (e.g., selling ice to Eskimos)

• A product that’s trendy in one area, but not in another, makes it harder to sell (e.g., selling thermal underwear to consumers living in Florida)

If a product is in high universal demand, adequate but not plentiful supply, with a moderate to high price point, it is easier to create response with a coupon. Without those variables (moderate demand, moderate supply, low price point), it is more difficult to get new consumers to respond to a product offering simply to save a small amount of money…other factors (reputation, reliability, brand awareness, etc.) tend to become as important as monetary benefit / discount.

Tomorrow we'll post the 2nd portion of this whitepaper with additional factors that contribute to a response rate.

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