For 95+% of ecommerce brands, BFCM is the best time of the year for revenue generation and activity. Customer acquisition is at its highest as first-time buyers flock in to get their holiday shopping done at a discounted rate. With just a few faulty planning decisions, though, it can become a nightmare for your retention and AOV metrics. Only 18% of first-time holiday shoppers ever make a second purchase with a brand, usually as a result of a lack of a clear retention plan before the holiday season. Structured correctly, your BFCM strategy can lead to increased customer spending and create a new generation of brand loyalists; structured poorly, you can be giving away margin without getting anything in return.
Building a strong BFCM strategy is a delicate balancing act that starts with an understanding of your unit economics and what incentives your customers actually care about. There is an inverse relationship between customer acquisition and AOV, splitting brands between two paths. Do you focus on driving new customers, who provide massive volume growth but minimal contribution dollar growth, or do you focus on nurturing your loyal customers, who represent a small percentage but bring in the most contribution dollars? At Stamped, we believe you can do both with a smarter holiday discounting strategy.
Prioritizing your loyal customers
While the holidays are guaranteed to create an influx of new customers, don't make the mistake of giving them your undivided attention. The highest value actually lies in your most loyal customers.
Studying data from last year's BFCM, Repeat found that there is a direct correlation between AOV and the number of orders a customer has made. In other words, the less orders a customer has made, the smaller the AOV will be. Naturally, this means that any new customers gained during BFCM are going to be spending less than your repeat customers.
That means one of your main goals for the holiday season should be getting your most loyal customers to stock up, starting with a discount offer worth their time. Your most loyal customers don't need a reason to buy and do so when they want or need your product—even during a major sale event. So, if you want to get them off the sidelines during BFCM, pull them in with a good deal.
Another place to consider strategy is your loyalty program. In our recent BFCM report, we found that orders placed with loyalty rewards during BFCM had the same discount percentages as orders placed with loyalty rewards outside of BFCM. That's especially significant when you consider that non-loyalty orders had 35% deeper discounts during BFCM.
This proves that for your loyal customers, a discount offer doesn't have to be your only option. Other incentives like points multipliers or accelerated earnings can also be effective, since doing so with your most loyal customers will deliver the best AOV gains during the holiday season.
If you're going to offer a discount, though, what should that deal look like? Let's break it down.
Dollar-based versus percent-based discounts
Dollar-based discounts might be the most popular offer used by brands, but that doesn't necessarily make them the best. Analyzing over 350 of our best loyalty programs, we found that when customers redeem a dollar-based discount, AOV is 4% higher and basket size is 12.2% higher than other returning customers. A slight improvement, but when you consider the cost, this reward mechanism can end up giving away margin—and that's before discount stacking comes into play.
Instead, let's take a look at percent-based discounts. We found that they drove a much more significant behavior change, creating a 47% lift in AOV and a 38% lift in basket size.
Before we completely dismiss dollar-based discounts, though, let's consider the potential benefits. If you're looking to bolster a loyalty program, they can be a highly effective way to drive customer participation. Increased engagement can build habits around a loyalty program, and so those lower business impact metrics are buoyed—to a degree—by the fact that more customers participate. While discount-based programs have less engagement, the difference in AOV erases any sort of detrimental impact.
Now that we've reviewed discount types, what about other reward types?
Offering free products as an alternative
Free product rewards have significantly worse AOV and basket size metrics than discounts. The reason is simple: customers redeem their free product, but often don't buy anything else with it. But what if we looked at a different metric to measure their value?
Analysis from Repeat found that the likelihood of a customer making another purchase increases by 5-10% from purchases three through five. So, what happens when you give somebody a product for free and they basically treat that product like a purchase? The exact same thing. Our data showed that returning customers who redeemed a free product returned within 90 days to make another purchase roughly more than 65% of the time. Comparatively, customers who weren't redeeming a free product returned within 90 days only 54% of the time.
In other words, free products are a lever to improving 90-day repurchase rates; and at a 20% lift in 90-day repurchase rate, that can have a material impact on extending customer lifetime value.
Strengthen your BFCM strategy with Stamped Loyalty
As tempting as it is, BFCM is not just about attracting new customers—it's also about strategically engaging your loyal customers who deliver the best gains. By leveraging different types of discounts or rewards, you can maximize the lifetime value of your repeat customers while still growing your customer base during the holiday season. As you fine-tune your strategies, remember that balancing acquisition with retention is key to long-term success, ensuring that both new and loyal customers keep returning well beyond BFCM.
Not only do orders placed with loyalty rewards during BFCM have the same discount percentages as orders placed with loyalty rewards outside of BFCM, but non-loyalty orders also have 35% deeper discounts. A strong loyalty program can be a significant part of your BFCM strategy, and Stamped Loyalty is equipped with all the tools you need to build it. Not only can you fortify your approach to BFCM, but you can also drive more purchases, create a lift in retention, improve LTV, and more. Book a demo with one of our sales reps and start crafting your own loyalty program today.