How Black Friday and Cyber Monday Shoppers Behave & How To Use Them In Your Ongoing E-commerce Strategy
Discounting tends to be a necessary evil for a lot of businesses, especially young ones with inventory management issues or aggressive revenue targets. No matter the company’s purpose, it is clear that the discounting trend is here to stay in e-commerce and there’s no time period where it’s more prevalent than the holiday season.
In 2016, Cyber Monday online sales increased to a record-breaking $3 billion, up 12% YoY. This massive influx of customers, however, does not come risk-free for businesses. Discount shoppers are notorious for being loyal to deals and not brands. Relying on this method of customer acquisition has shown to create over-optimism in business health as marketers simply look at the acquisition cost of total customers instead of retained customers. Just ask the numerous new meal kit services that acquire customers through free or cheap meals and find churn rates from their services as high as 90%.
So this begs a few questions: Are Black Friday customers worth acquiring? How should you treat these customers once they are acquired?
I tracked data from a cohort of these customers for over a year to discern trends, answer these questions and suggest tips on how to make these customers a smart part of your on-going business strategy.
Note: There are a lot of factors that make answering this question company specific: for instance the nature of the company’s product and the discount offered. I looked at a year’s worth of cohort data of one apparel company that offered pretty standard discounts during the Black Friday time period (20-30% site wide).
Are Black Friday Customers Good Customers?
The answer to this question vastly depends on your definition of what a “good customer” means to your business. For instance, if topline revenue is your main KPI, data tells me that this cohort is valuable to your business.
I compared major KPIs of the Black Friday cohort versus a similar time period cohort that was not acquired through Black Friday discount deals. The results: a similar overall customer with different habits. The average life-to-date spend of a customer acquired on Black Friday by discounts showed to be just 4.4% less than those acquired at full price of a similar period. Furthermore, the repeat purchase rate (and thus churn rate) of Black Friday customers was within a percentage point of our overall customer metrics. The cohort’s average number of orders per customer was just 3% less and their average order value was just $1 less.
Although the top-line KPIs of the Black Friday segment don’t look that different than a “normal” customer, the two cohort’s customer journeys look completely different and suggest that they should be treated differently.
How Should You Treat Black Friday Customers?
Every retailer fears the “training” effect for its customers: If a customer is acquired by a discount, or if a retailer offers routine discounts, then the customer learns to only convert at these discounts. The data showed this fear to be well justified. Repeat purchasers acquired by Black Friday were 3.4x more likely to make a follow up purchase on a discount than a customer acquired at full price. Furthermore, 91% of all orders from the Black Friday cohort in their lifespan contained a discount code and if even if you segment out the one-time purchasers (which had an 100% rate of discount code usage), 72% of all repeat buyers’ subsequent orders from the Black Friday cohort contained a discount code. These are clearly customers loyal to discounts more so than the brand.
Note: The study showed that this phenomenon is not unique to Black Friday and Cyber Monday, but even acquiring a customer with as little as a 10%-off coupon for first purchase coupon or e-mail list signup can train the customer. Conclusion: When possible, avoid discounts for acquisition.
It is clear that a Black Friday or discount-acquired customer behaves differently than a full-price acquired customer. But, as shown in section 1, these customers still exhibit valuable overall spending habits. Here are some tips on how to cater to your newly acquired Black Friday customers without losing brand integrity or negatively training your full-priced customers.
Make Sure They Get on Your Email - Whether at checkout or through various pop-up modals, getting your Black Friday traffic to sign up for your email list vastly changes their life cycle with your brand. The Black Friday customers who accepted receiving marketing emailed purchased 40% more than those who didn’t and spent 43% more. You’ve already acquired this customer via discount and the data shows that they will most likely only buy from your store at a discount in the future, so why not entice them to sign up for your email list by advertising future email-exclusive promotions?
Use Discount Customers to Clear Overbought Inventory - Inventory management is tricky [link to inventory management blog] and no company of any size has mastered it (hence the abundance of “warehouse sales”). The inventory challenge, however, actually creates an opportunity to better utilize a discount-acquired customer cohort. Discount customers by nature are less picky in terms of colors and styles and will be more willing to buy your excess inventory at reduced prices. This is not a terrible trade and can offer better margins than off-pricing your merchandize to a discount wholesaler like TJ Maxx or Marshalls.
Segment Your Database to Offer Deals Only To This Segment - The worst thing you could do is train your customers acquired at full price to behave like this Black Friday cohort. The more dependency on discounts your brand has, the less control you have over your brand’s revenues and image. When inventory needs to be cleared or you need to offer a discount for a specific holiday, consider segmenting out just those who were acquired by discount or are exhibiting discount-only purchasing behavior.
Discounting as a retailer is a dangerous game. It is a tough balance of increasing revenue, creating bad customer behavior, and potentially damaging the brand. With Black Friday here to stay, I found that Black Friday acquired (and discount acquired customers in general) are overall not bad customers and, in fact, when used correctly can actually serve a much needed business purpose.