Cyber Monday: Tarnish Your Brand, Slash Profit, & Kill Customer Loyalty, All in 24 Hours

Ah, Cyber Monday is here: the peer pressure fuelled day when all retailers mutually agree to cut their profits and encourage their customer’s addiction to discounts and promotions.

I know that sounds a bit pessimistic, maybe even downright harsh, but hear me out.

There are really only 2 reasons why a retailer would offer Cyber Monday promotions: to gain new customers or reactivate old ones. Let’s talk about what deep discounting does in both situations:

Acquiring New Customers: Suppose a man offers a woman $1,000 to go on a date with him. She accepts. How much of a chance do you this couple has at a long term, quality relationship? Any business transaction based on bribery (and let’s be honest, that’s essentially what discounting is) only produces low-quality, low-affinity relationships. Customers acquired through steep discounting are far less likely to rebuy unless a similarly steep discount is offered again. If you’ve ever run a lifetime value calculation on these customers, you’ll undoubtedly find that it’s much lower than your typical customer LTV. (If you’ve never run this analysis on your customer database, please do yourself a favour and run it!) When discounting is the foundation of the relationship, future price increases are simply out of the question.

Reactivating Existing Customers: The second reason for offering promos is to entice existing customers to order again. In general, we like to tell ourselves that by offering an outstanding promotion, we’ll attract repeat customers who’ll place an additional order they would not have otherwise. While sometimes this is the case, more often than not you simply allow our customers to buy the same amount for much less. These discount purchases often cannibalize full price sales that would have naturally happened later. The spike in sales caused by promotions is illusory because heavy discounts simply shift sales backwards. (Again, this requires lifetime value analysis to see)

If you’re participating in Cyber Monday promotions this year, this post isn’t intended to make you feel dumb. I do encourage you, however, to ask yourself these 4 questions as you analyse today’s results:

How much actual profit did I generate from Cyber Monday? Forget about top line sales, what does the bottom line look like? Don’t forget to consider additional overhead or marketing expenses related to today. Most importantly, how does this profit compare to other days between Thanksgiving and Christmas in which you did not offer steep discounts? I think you’ll be surprised to find how close these numbers are.
For all of the first time customers you generated through the promotions, how many will rebuy in the next year? How much will they spend? And most importantly, how does this compare to the profile of your typical customer who is acquired without discounting?
What happens to the perception of your product when you offer it for 30% off one day, but not the next? As a customer who missed out on the deal, how would they feel about paying full price later?
How many of my customers would buy anyway without a promotion offered? This is perhaps the hardest question to answer, but a vital one. In the future consider performing a holdout test where a small group of customers are not sent your typical promotional emails. After a period of say, 3 months, analyze how these customers performed compared to your control group.
Look, I’ve been in your shoes. At a previous job, I spearheaded 6 years of “successful” Cyber Monday promotions. I watched as we posted astronomical Cyber Monday sales gains year over year. But when I finally got my head out of Google Analytics and started looking at customer analytics, and was shocked to find that these kinds of strategies yielded zero long term value for the company. That’s right, zero.
I suppose this post isn’t so much of a rant on Cyber Monday as it is against rogue, unstrategic discounting. Sure, there are times when discounting is a necessary evil, especially for retailers with commoditized products or large inventories. In addition, if your entire business model is based on discounting at massive volume (think Walmart) Cyber Monday is your chance to shine. But most of us are not like Walmart, and don’t have the luxury of massive scale. If you’re a niche retailer or brand manufacturer, you need to seriously ask yourself why you’re participating in today’s festivities.