Retail Marketers Weigh Free Shipping Against Another Round Of Holiday Markdowns

Every holiday season, retail CMOs weigh whether another markdown is worth the margin it costs. A markdown lowers the price for every shopper who sees it, including customers who would have otherwise paid full price. Free shipping and other non-price offers, on the other hand, take away a reason to hesitate at checkout while the product keeps its price.

Retention and lifecycle leaders who work with DTC brands see a cost in repeated promotions that lasts well beyond the holiday season. Their answer is to protect the price, extend offers that go beyond a percentage off, and save the biggest incentives for the customers who need one to convert.

The cost of another markdown

Emily Pfeiffer, Associate Manager of Lifecycle Marketing at the baby food delivery brand Little Spoon, sees many brands letting the promotion strategy lead. In her view, the product should be what customers buy into, and she doesn't find it useful to market Little Spoon's premium food on price. Her caution also comes from how she shops herself. "If I want to buy something and I'm not totally ready to jump on it at the current price point, I will just sit and wait," says Pfeiffer. "I'll enter my email and they'll reach out to me. It'll start with 10% off, then I'll get 20% off, and then I'll get 30% off. It does dilute the product a little bit in my eyes if you're willing to keep sending me promos over and over again."

The depth of a discount can also affect whether a customer comes back. As a shopper, Pfeiffer says she'd probably buy only once at 50% off, and two or three times if she converted at 20% off. Even so, Alison Ehrmann, a fractional CMO and advisor to DTC businesses, has seen little movement away from incentives among the brands she consults for. "Incentives are really good at driving short-term results," Ehrmann notes. "But I think now businesses are seeing that's not the way to develop loyal bases who add true profitability to a company."

Offers beyond the percentage

Shoppers weigh shipping costs heavily when they decide where to buy. In one recent consumer survey of online shoppers, free shipping remained the leading factor in purchase decisions at 62%. Free shipping's influence dropped 14% from the prior year, however, while expectations for fast delivery nearly doubled. Unexpected shipping fees led 71% of respondents to abandon items in their carts. Nearly three-quarters, 73%, added items to qualify for free shipping, and 48% research which brands offer free or cheaper shipping.

Non-price offers can take other forms as well. Brian Campbell, Founder and CEO of CrucialPoint, a lifecycle engineering firm, tells clients to carry an offer through every touchpoint a customer sees. His advice covers the welcome series, abandonment flows, and broadcast emails. "When I say 'offer,' I don't always mean a discount, like 20% off or a big offer," says Campbell. "It can be a free item add-on. Or the offer is, you can jump on a call with one of our reps and they're going to walk you through this process."

Krista Dalton, Chief Marketing and Digital Officer at the Western boot brand Tecovas, spent nine years at Target before moving to Overstock. She carried lessons from both into her current role. At Overstock, a performance-heavy ecommerce business, the team watched return on ad spend by the hour. "I also know the pitfalls of promotions," Dalton explains. "I'm very, very hesitant to get into that game with a brand at the stage that we're at."

Incentives for the right customer

Marketers can decide which customers see the biggest holiday incentives. Ryan Willette, Global Head of Customer Success, Partnerships, and Account Management at Attentive, describes how marketers split a customer base into three to six groups by how recently, how often, and how much each customer buys. In his description, the least active group gets the season's biggest deal, and each of the other groups gets different outreach. "For your really good group, you don't want them to just be getting discounts nonstop because they like you," says Willette. "They don't need that. If someone buys a lot of stuff from Callaway, they don't need 30% off Callaway."

Campbell sets similar rules for lifecycle flows. He believes spending $10 in coupons to get a purchase in a customer's first seven days means being ready to spend that again over the next 90. He also advises splitting every flow between customers who have bought and those who haven't. Asked how the businesses she advises are using AI, Ehrmann turns to incentives. "There's a lot of interesting work being done about how you can get much more laser focused on who to offer incentives to and how much to offer," she adds. "There's more one-on-one as opposed to doing segments or broad-stroke offers."

Aiming incentives also means planning for the customers a holiday promotion brings in. At Little Spoon, Pfeiffer includes promo-oriented shoppers who have stalled all year in the biggest sales of the season. Customer quality may run a little lower, although the volume puts many new customers through the brand's onboarding flows and gives the team more chances to prevent churn later. "I think that's the big thing people miss about Black Friday," Pfeiffer concludes. "Yes, you're going to get a lot of acquisitions in that one week, but you're going to have a ton of people you don't know what to do with after that."