Podcast 23: Dynamic Ascending Offers (and Hamilton)

Hey, everybody, Drew Sanocki here with the Nerd Marketing podcast screencast. What musical is generating a half million dollars a week in profit? That’s the question today, and the answer is, of course, Hamilton.

I saw Hamilton recently, and like everybody else who saw Hamilton, I feel compelled to tell everybody else that I saw Hamilton. The subtext being that it makes me somehow cooler.

Well, so I’m passing that on to you. I saw Hamilton, so I am cool. Seeing the musical did get me thinking. How would you compete with Hamilton? What if you’re my buddy Larry, who wrote and produced this musical called Bat Boy, which is like around the corner from Hamilton. How does Larry fill the theater every night? Well, one of the things he can do is use dynamic ascending offers, and it’s a strategy or a tactic that I think every e-commerce retailer can benefit from.

If you’re not using them, it will make you money, and they’re very easy to set up and implement, and they wrap up two ideas that we’ve been talking a lot about in this podcast. Without further ado, the first concept is recency. We’ve talked about that in the last few episodes. We being me, by the way; I don’t know why I’m using we. I’ve talked about that in the last few episodes. Recency is essentially the time since an action has happened. So usually it’s in days, so how many days since I have last visited a site or opened an email or purchased from a site.

Want to save this transcribe as a PDF? No problem, click here to download it.

Really applies to anything, but it’s time since in action and the more recent the person, the more likely he or she is to repeat an action and/or respond to a promotion. That’s where it’s interesting to you as a marketer, because if you have the option of promoting to customer A, who last purchased last week, or customer B, who last purchased two years ago, you know, spend your promotional dollars on customer A.

They are much more likely to respond to a promotion. Another way of saying this is good customers stay good. If you’ve got somebody who’s buying religiously every week from you, they are likely to continue buying from you.

If you have somebody else who hasn’t purchased from you in a very long time, they’re likely to stay bad, so in the back of your mind, think recency means good customers stay good. And what’s really powerful, especially if you’re starting up a business, SaaS business, e-commerce, content business, really anything, recency is predictive of lifetime value. Now there’s a lot that’s been written about lifetime value and how important it is to know your customer lifetime value. I think it’s very important, but the problem with a startup is that you don’t know what the customer lifetime is.

You don’t know how long somebody’s gonna stay a customer. And until you figure that out, recency’s the next best thing. Just to show you here, the example that I talked about a couple weeks ago on the podcast. We’ve got a retailer here where we’ve created a high recency segment, so the blue line would be all of my visitors and the orange line would be those who have been on the site in the last couple weeks.

You can see that they punch above their weight, so if I look at the Users column here, 26% are my quote unquote high recent customers or my customers who have high recency, and yet they end up generating about 46% of my revenue, so this is historical. Historically over the past three months, they’ve been good, but it’s also predictive, you know.

They’re going to be a better segment going forward, and what you wanna do for your products, for your marketing campaigns, for your keywords, is you just scroll down here, and if, you know, if each marketing campaign or each of these channels drove the proper, you know, the expected ratio of high recency customers, then this number here in the New Users column should always be the same.

Top and bottom, you know, the percentages should, each channel should always drive the same percentage of high recent customers, right, but it’s not the case. You see email here is disproportionately driving more recent customers than average, whereas direct traffic is lower than average, so this tells me that, going forward, email is gonna be a great use of my time. It’s gonna drive customers that have super high lifetime values. So, that’s a quick review of the concept of recency. And then, early, back in the podcast, for those old timers, those Nerd Marketing old timers who were with me back in January, we talked about promotions and the idea that most retailers over-promote.

There’s this thing called a subsidy cost, which is a hidden cost. It means that you are paying promotional dollars to encourage a purchase when that customer would have bought anyway So I love Bonobos; I’m going into the store. I’m gonna buy a Bonobos shirt. Got my credit card out, and then Bonobos is like save 10%.

I’m like, dude, alright, I’ll take that 10%, but you know, you just gave away 10% of promotional dollars to encourage a purchase that I would’ve made anyway. That’s a subsidy cost. Ideally, you don’t wanna do that. You wanna sync your offers with your response rate, so if a customer is likely to buy, has a really high response rate, you don’t wanna give them an offer. And if you have another customer who probably has a low response rate, is not likely to buy, then you wanna give them a bigger offer.

The more you sync your offers to your response rates or your expected response rates, the higher your profits will be, and that leads to the idea that I’ve been talking about called dynamic ascending offers. They’re really easy to implement, and the concept is as the recency declines, the promotion amount magnitude increases.

A very typical one in retail is a 30, 60, 90 discount ladder. In other words, if a customer has not purchased in 30 days, then they get, say, a 10% off offer. If that same customer has not purchased for 60 days, then they get a 20% off offer. And if that customer has not purchased by 90 days, they are becoming less and less likely to ever come back. Their recency is going down, then they get the biggest offer, a 30% off offer. So if you take that mentality, that dynamic ascending offer mentality, and increase the magnitude of your promotions with the declining recency of that customer, then you’re gonna maximize your profits. I should note here, a lot of retailers are really sensitive to their brand.

They don’t wanna promote, they don’t wanna send out a discount. What’s important here is not the magnitude of the discount, or even the fact that you use a discount. You know, you could give away a free gift. You give away a free revolutionary era dusted wig, right. But the idea is you just increase the magnitude of that giveaway or that benefit with the time. So here’s another example from Klaviyo, one that I implemented at a pretty big retailer. Under Flows, you’ve got, you know, my day 30, my day 60 and my day 90 promotion.

Too long? Read at your own pace, download this transcribe for later.

You click on Preview here and you’re gonna see that, you know, it’s a basic 10% off offer, 15% off offer, and a 20% off offer. In this case, I may be testing them, 10 versus 20 percent. 15 versus 25 percent, and 20 versus 30 percent. But you get the idea, the magnitude of the promotion increases, and if the customer ever takes the bait, if they ever buy, then they fall out of the sequence. They’re not obviously gonna get the next big offer from me. That’s how you implement one of these in Klaviyo. And let’s go back to the story I told at the beginning. My buddy Larry. You know, when you’re walking around New York City, you see signs for Broadway plays all the time, and that’s when you’re really likely to purchase a ticket, is when you see that sign, and you think, hey, Bat Boy, this thing looks really funny.

I should go to it, and a lot of the signs for these plays have like those QR codes where you can scan it on your iPhone and you get directed to the site or you get added to their mailing list. So if I were Larry or if I were Larry’s marketer, I would take advantage of dynamic ascending offers. I don’t wanna give somebody a 10% off coupon to come see my play when they are likely to see the play anyway. So I’m running his campaign, I want people to scan my ad and get added to my list and the first offer they see is a full price, hey, here’s a little bit more about my show, when it shows, where it shows and how you get tickets.

And then, he can log the date of when I, you know, first engage with that ad, and as time goes by, I become less and less likely to go see Bat Boy, right?

Like, I get more involved with other things around New York, and Bat Boy falls to the back of my brain housing unit. I’m less likely to go to it. Well, that’s when he wants to reach out to me and offer me some discounts. So maybe 30 days after I see that ad, I get 10% off, and 60 days after the ad, I get 20% off.

Eventually, I’m gonna say, you know, this is really worth it to me to go see Bat Boy. I’m gonna take the bait, I’m gonna fall out of his dynamic ascending offer sequence, and boom, he’s got a new customer. So, that was just a quick review of that concept. I hope it made it clear. For those of you who’ve been following the podcast, it brought together recency, subsidy costs, promotions, and really walked you through how you’d wanna implement that at your own retailer. So that’s it for today.

Thanks for listening to the Nerd Marketing podcast. By the way, for all show notes and resources that I mention in today’s episode, if you want this slide deck, for example, just go to NerdMarketing.com slash the number of the episode.

For example NerdMarketing.com slash 15, 16, 17, just the number, and you can download all the show notes. You can download this presentation, and if you’re thinking about getting started or just getting started in e-commerce, I recommend you go to my Start Here page, so NerdMarketing.com/Start-Here. On that page, you can opt in to get two resources I really recommend.

One is my top five e-commerce marketing tools, and the other is my million dollar business cheat sheet. Both really lay out the tools you can use to drive your business to a million dollars revenue in a short amount of time.

For those of you who are already running a successful e-commerce business, doing, say, six or seven figures per year, and you wanna get to eight figures, I encourage you to check out my Profit Machine Mastermind. So I’m about to launch this over the next couple months and it’s going to mostly have seven figure store owners who wanna get to eight figures and I’ve found one of the best ways to do that is by focusing on retention and customer analytics.

I am going to walk you through my approach and the one I use at my private equity clients over the next year, and you can find more information about that at NerdMarketing.com/Mastermind. Lastly, for all those on a mobile device right now, text NerdMe, so one word, N-E-R-D-M-E to 44222. So that’s NerdMe to 44222, and I’ll text you back, add you to my list and send you the resources from today’s show. Thanks for listening, talk to you next week.