A retailer finds that even unadvertised price cuts can boost sales
Promotional items e-retailer Branders.com increases conversions in price-cut experiment.
By: Thad Rueter, Internet Retailer (Published April 20, 2011)
Call it a tree-in-the-forest question for e-commerce: If an online retailer cuts prices but doesn’t tell anyone about it, would that still boost sales?
Going by a recent test conducted by Branders.com, the answer could be an emphatic yes.
In January, the seller of personalized promotional items tested three versions of its e-commerce site to measure the impact of price cuts. One version featured the retailer’s normal prices. Another version had across-the-board price reductions of 20%, with the third having 40% price cuts.
Software randomly sent visitors to one of the three versions. None of the price reductions was promoted on the site nor through other forms of marketing. And while all shoppers could take advantage of the price cuts, the retailer, by analyzing cookies, isolated the results to first-time site visitors, says CEO Jerry McLaughlin.
The results were encouraging, he says, with the 20% price cut resulting in a 12% conversion rate among first-time visitors, about 1.5 times higher than normal. The 40% price cut resulted in a conversion rate of about 20% for the first-timers, nearly three times the normal rate. Overall, the site has a conversion rate of about 8% for all shoppers. “We expected a sales spike,” he says, “but we were surprised at how big the actual spike was.”
Branders.com sells mainly to businesses, nonprofits, schools, government groups and other organizations that want to personalize products that can range from tools to golf balls to personalized tote bags to calendars; buyers use the products to promote their own businesses. Branders says it has more than 100,000 customers, with an average order value of about $1,000, in line with the norms for the promotional products industry, McLaughlin says.
The point of the January test was to measure the impact of price reductions so the retailer can better staff its customer service and fulfillment operations for future promotional efforts. The retailer wanted to gain a precise measure of sales lifts from price cuts, he says, especially since the competitive nature of the industry puts ever-increasing pressure on prices. “When you lower the price, you expect to get more orders, but if you want to staff properly, you need to anticipate how many orders you are going to get,” McLaughlin says.
The number of first-time visitors to the site with the regular pricing was 76,908, he says. The number of visitors to the site featuring the 20% reduction was 56,658; 44,316 visitors came to the site with the 40% reduction. “What we learned is that customers do recognize the difference in pricing on their own,” he says. “We believe the results we got can be sustained in the long term.”
That doesn’t mean the online retailer is ignoring the role that price-reduction promotions can play in further boosting sales. McLaughlin says the sales spike likely would had been higher had Branders.com marketed the price reductions.
In fact, the retailer is wrapping up another test to determine how the display of competitors’ prices will influence sales. The test involved visitors to Branders.com being randomly directed to two versions of the site, one with regular pricing, the other with individual product pages that also include prices from three competitors. Like the previous effort, testing is being done in-house, but McLaughlin says it is too early to reveal results.
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