But losses mount for the home furnishings e-retailer that went public in October.
It’s not necessarily the most valuable incentive that converts the best, a case study shows. And the highest-converting incentive isn’t always the most profitable for the e-retailer.
What’s the more effective incentive, $5 off or 5% off? If you answered ‘it depends,’ then you’re correct, but what it depends on may surprise you. FSAstore.com, an online retailer of items that consumers can buy with funds set aside for health expenses in Flexible Spending Accounts, set out to answer this question by split testing a $5 and 5% incentive on site visitors who abandoned before converting.
FSAstore.com discovered that neither the value of the incentive nor the size of the potential order had much to do with conversion rates. They learned that incentives convert differently as the shopper progresses through the purchase process and the most valuable incentive isn’t always the top-converting one.
FSAstore.com partnered with UpSellit to launch a site abandonment solution that combined on-site abandonment engagements with email remarketing. First-time visitors who abandoned were presented with either a $5 or a 5% discount.
Unidentified (no email collected) site visitors were presented with an on-site incentive at the exact moment of site abandonment. The engagement featured information about their shopping cart alongside a $5 or 5% discount.
If the shopper had provided an email address before abandoning, then a series of remarketing emails were sent to recover the lost conversion. The email remarketing campaign began with an immediate, non-incentivized cart reminder, followed by $5 or 5% discount 24 hours later. If the consumer hadn’t completed a purchase 72 hours after the initial abandon, a third email was sent that tested a $5 against a 10% discount.
On average, 94% of online shoppers abandon their first visit before providing an email address. To re-engage these unidentified visitors, FSAstore.com deployed UpSellit’s Targeted Offers to recover visitors at the exact moment of site abandonment.
The $5 discount’s conversion rate was 30.6% higher than the 5% discount. Based on FSAstore.com’s average order value, the 5% discount is worth about 150% more than the $5 discount. This begs the question, “why would an incentive with a substantially lower value convert more abandoning visitors?”
UpSellit and FSAstore.com concluded that the flat-dollar discount performed better because it was more quickly and easily understood. When presented with a split-second decision--continue abandoning or return and purchase--visitors were more likely to convert when they didn’t have to calculate the value of the incentive.
UpSellit then segmented the Targeted Offer results by active and inactive carts. If the visitor had not yet added an item to their cart then they were 40.3% more likely to convert when offered a $5 discount. If the shopper had an active cart then they were only 24.9% more likely to convert with the $5 discount.
Although the $5 discount consistently performed better, shoppers with an active cart were more willing to calculate the value of the 5% discount and convert. UpSellit and FSAstore.com concluded that an active cart revealed that shoppers were closer to the purchase decision, and they were able to more easily calculate the value of a 5% discount.
On average, 56% of online shoppers who reach checkout abandon before completing their purchase. With PreCapture® technology and checkout best practices, FSAstore.com was able to collect leads from over 70% of the shoppers who abandoned checkout.
Using these leads, UpSellit launched an email remarketing campaign designed to recover conversions while testing the effectiveness of the two incentives. Visitors offered the percentage discount converted 16.5% more often than visitors who were offered the flat-dollar discount. For these more highly qualified shoppers, it appears that the percentage discount is more effective. It’s safe to assume that when presented with an incentive in an email, the consumer has more time to consider and calculate the value of the percentage discount. Visitors abandoning checkout show the greatest possible purchase intent of all abandoning traffic and are therefore more likely to take the time to calculate the value of a percentage discount.
While the percentage discount converted at a higher rate, the flat-dollar discount provided a higher lift in profitability. Because the ‘5% off’ incentive was, on average, 150% more valuable than the $5 discount, it was actually more profitable for FSAstore.com to continue using the flat-dollar discount, despite a slightly lower rate of conversion.
Profitability is the key consideration when identifying the ideal incentive. An incremental lift in conversions is irrelevant if those conversions don’t translate into increased profits. The split test FSAstore.com ran on their checkout abandonment campaign is the perfect example of a situation where the incentive with the highest conversion rate isn’t the incentive with the biggest increase in profits. Be sure to always check the cost of the incentive against the increased conversions for each split test before determining the ideal incentive.
Target and suppress your incentive campaigns. Giving away unnecessary discounts to increase conversions can hurt your profitability. FSAstore.com’s site abandonment solution limited its engagements to first time visitors who abandoned. By only engaging visitors the first time they visit your website, you prevent training your shoppers to coupon hunt, and by waiting until they leave, you avoid giving something away before it’s necessary.
Align your incentive strategy with your customer journey. For FSAstore.com, the ideal incentive was a flat dollar amount. However, segmenting the results proved that visitors react differently to a flat dollar or percentage discount, depending on where they are in the buying process and what they’re doing when offered the incentive.
UpSellit provides online retailers with cart abandonment recovery technology on a pay-per-performance basis.