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Voucher codes have rapidly grown in popularity over the past few years. There have been a raft of sites launched to allow people to share codes and it seems that many e-commerce sites are offering them as part of their digital strategy.
Why voucher codes are great
Everyone loves a bargain, or likes to think they're getting one, so voucher codes (or discount codes) can really drive sales.
They're easy to promote
There are many sites that you can advertise them on, cheaply or for free. This can make overall cost per acquisition (CPA) lower than other channels, such as Google Adwords. They're also ideal for promotion via email, social networks, TV or radio. In fact, you can really promote them anywhere.
They're easy to share
If the voucher code is attractive enough, or has a feel of exclusivity about it, your customers might share it through email or social networks which will drive further sales. Some of the most successful voucher codes offered by e-commerce retailers have quickly gone viral.
They're incredibly flexible
Voucher codes can be used for a huge range of different promotions and used to manipulate a whole array of customer behaviours, making them exceptionally versatile.
They're easily tracked
If you build the voucher code system into your e-commerce platform you'll be able to monitor how many codes have been redeemed, how much the redemptions cost you, and how much profit you've made.
Since you can create unique codes for individual campaigns, you can also use them to track the performance of individual offers, marketing strategies or advertising sources or creatives. This makes the voucher code a web analyst's dream.
They're easy to split test
Do your customers respond better to a 10% off voucher code than 5% off? Would a fiver off work out just as well? It's dead easy to split test voucher codes, so you can provide several and see which one is most profitable for you.
They're great for increasing average order value
You can intentionally strive to increase average order value by restricting voucher code usage to orders over a certain amount, such as 10% off when you spend over £75, which is a quick and easy way to give your AOV a boost.
However, it does appear from experience that the use of any code encourages customers to spend more, even when you don't add a minimum order threshold.
Not everyone redeems them
Weirdly, if you advertise a voucher code via display advertising or email, some of the customers who arrive via the channel will fail to use the code, either because they forget or can't figure out how to redeem it. However, weirder still, the same customers who don't redeem often spend the same amount as those who do use the code.
Why voucher codes may suck
They reduce margin
When you offer a voucher code to a customer you're effectively paying an acquisition (or retention) cost in the form of a discount. This will eat into your margin and if you offer a code that's too valuable you may pay for it in profitability.
They can greatly increase acquisition costs
Since you're effectively already paying an acquisition or retention cost every time a voucher is redeemed, your costs will significantly increase if you also have to pay to advertise the code. This has the potential to make the offer unprofitable.
If you are paying money to advertise the code, it needs to be sufficiently attractive to ensure it gets a high enough response to cover the doubled acquisition costs.
Customers may delay their purchase
If your sales staff try to encourage customers to opt-in to your newsletter by telling them they'll receive voucher codes periodically, you can put money on the fact that some of them will ring up asking when the voucher code is going to arrive because they're waiting to place their order.
Customer feedback suggests that some of them will wait until a code becomes available before the place an order.
They increase checkout abandonment
If you add an "enter voucher code" field to your checkout page, keep an eye on your abandonment rate. It will almost certainly increase, as a large proportion of visitors are likely to go off looking for a code to enter.
Type your site name into Google and, chances are, one of the first additional search phrases you'll see in Google's suggestions list is your site name followed by the words voucher code. This is pretty strong sign that people are temporarily leaving your site to search for a code to use.
How you can use voucher codes
To acquire new customers
Acquiring new customers can be painfully expensive, and even though you'll be reducing your margin and effectively paying an acquisition cost in the form of a discount, offering a voucher code can bring new customers to your site at quite a reasonable cost, if you get the offer right.
You can also control the acquisition costs very easily, which can't always be said for display or PPC advertising.
To retain existing customers
Most people tend to think of voucher codes as a customer acquisition tool, but they're also great for retention. Offer new customers a voucher code to redeem with their next order and you could see a positive growth in the number you convert into returning customers.
To help hit sales targets
If sales are flagging and your projections suggest you might not hit your sales target, a voucher code could be just what you need to give things a boost. They work so much better than a standard offer email, and there are so many variants you can use, that you'd be foolish not to test them.
To clear old stock
If you've got excess stock you need to clear from your warehouse running a promotion via a voucher code is a great way to get rid of it profitably, and allows you to track how you did it.
To increase average order value
If you want to increase your average order value consider restricting the use of the voucher to purchase over a certain amount. However, do be aware that there's a fine line between increasing average order value and reducing sales and adding a minimum order value will affect sales.
Some people will be put off by spending more than they want, which means you could make less profit, not more. Run an A/B test to test your theory.
To promote high margin products
Margins on some products can be so low that offering 10 or 20% off could mean you make barely any profit, particularly if you're also subsidising or paying the shipping costs. Using a voucher code to promote the products that bring the best margin is therefore a great way to increase the profitability of your offers and raise your overall margin.
To run time-limited offers
Every voucher code should have an expiry date, but there seems to be something about adding a time limitation that encourages customers to use a voucher code when you want them to. Send out an email and put the voucher code expiry date in the small print and, chances are, you'll drive fewer sales than if you clearly mark the voucher code "this weekend only."
To appease disgruntled customers
Sometimes people make mistakes: the wrong items get picked and packed, orders arrive late or damaged, or goods go wrong. If you're offering voucher codes as part of your ecommerce strategy, you may as well give them to the people that matter, and offering them to disgruntled customers might give you a better chance of retaining them.
To reduce call volume
If you want to reduce the number of customer order telephone calls in your call centre, try making it clear that your voucher codes are for online use only. This can incentivise customers to place their order on the site, which means less work for your call centre staff.
To emphasise your dedication to customer service
Determine which orders ship after your target time, then send the customer a triggered email containing a unique voucher code to apologise for not meeting your delivery target. The customer sees that you care about customer service and goes away with a favourable impression of your company.
They are also much more likely to return to spend the voucher, and they may even tell others about your service.
Three popular types of voucher code
10% off your order
The amount of discount you offer needs to depend upon the average margin for your site, and should also take any shipping costs into consideration. The bigger the discount the better the response.
For your customers 5% might not excite them, but 10% could have them salivating. Some sites offer huge across-the-board discounts, presumably taking a hit if the customer purchases from low margin lines. If your system allows it, you could restrict the code to only a certain category of products, or a certain SKU.
£5 off your order
Often as effective as a percentage discount, the offer of a fiver off (sensibly with a minimum order threshold) can also work wonders. If your average order value is around £50 then this will equate to a discount of 10% off the order total. However, if the customer spends £100 it's the equivalent of just 5%, so the acquisition costs are lower and they're fixed.
Many customers want free delivery, and if you don't offer this as standard on orders over a certain threshold, a free delivery voucher code might be worth a try. If others in your market aren't already offering it, it could also be a handy retention tool, as you could offer free delivery voucher codes to your loyal customers to encourage them to return.
How to market voucher codes intelligently
1. Keep acquisition costs to a minimum
If you have to pay a lot to advertise your voucher code you risk it becoming unprofitable due to the doubling up of costs. Email, Twitter and Facebook are all ideal channels to use to promote voucher codes.
They give subscribers, followers or fans something back, they're cheap, easy to track and have massive reach and the ability to go viral. There are also gazillions of voucher code websites, some good, some a bit on the tacky side - many full of outdated codes.
2. Track them with Google Analytics
If you've added voucher code functionality to your e-commerce platform you should have some kind of system in place to monitor usage. However, it's very useful to also have this in Google Analytics so you can segment it.
When a voucher code is redeemed add a trackEvent call to your GA tracking code to record the voucher code used and the value of the order. You'll then be able to analyse usage in far greater detail. Combine it with a custom variable indicating whether a customer is new, returning or loyal and you've got a ton of extra data to pore over.
3. Give them to the customers who need them most
Since voucher codes are so great at driving sales they can be used to manipulate customer behaviour. Examine your customer data to determine when they're most likely to purchase and when you're most likely to use them and try to target those customers specifically with a really attractive voucher code to help retain them.
You can make the codes trackable, allowing you to monitor your impact on improving retention. If you're offering particularly attractive codes that you wouldn't want new customers to use, restrict their use to individual customers to prevent them being shared on voucher code sites.
4. Keep a close eye on profitability
You need to think very carefully about the value of the codes you offer, the amount of times you offer them, the people you offer them to and the products you allow them to be redeemed against. If you get it wrong you could easily create an unprofitable campaign, so keep a watchful eye on usage and monitor your data in Google Analytics and react accordingly.
5. Do what you can to reduce basket abandonment
The mere presence of a voucher code field in a shopping basket form seems to increase checkout abandonment, as visitors scurry off to seek out a voucher code. The fact that many voucher code sites seem to contain mainly out of date voucher codes probably increases the chances of customers getting sidetracked and not returning. Making the form less obvious, or hiding it behind a link or lightbox is a great idea.
Anyone who has a voucher code can spend a few seconds looking for the field. Anyone who doesn't is far less likely to leave to try and find a code, as they're quite likely to miss the field.
6. Use them to help promote newsletter registrations
You could get a considerable boost to newsletter registrations by changing the wording on the voucher code field to suggest to users that they can get a voucher code if they sign up for your newsletter. The minor drawback is that some users expect to receive these all the time and might even delay ordering until a code is sent.