Holiday season promotions: Increasing online sales or hurting profits?

The 2013 holiday season was generally successful for retailers, with several industry organizations reporting year-over-year increases in brick-and-mortar, mobile, and online sales. A recent report from Innotrac noted how important the holidays are for retailers, with 91.7 percent of consumers reporting plans to celebrate the holidays. That’s a significant target audience for any brand to engage.

So what is the best way to get people visiting eCommerce websites and increasing online sales? According to a study from Innotrac, promotions play an important role in this process. When asked what was the single most important factor affecting their purchase decisions during the holidays, 35 percent of consumers mentioned price discounts. Promotions even took the lead over other key factors, such as merchandise selection, quality of products, everyday low prices and helpful customer service.

When asked what was the single most important factor affecting their purchase decisions during the holidays, 35 percent of consumers mentioned price discounts.

Of the 230 merchants polled by Innotrac, only 3 percent did not offer promotions on their home pages. At the other end of the spectrum, many retailers offered at least two promotions every day, with the exception of Cyber Monday, where many provided customers with as many as three different offers. Unsurprisingly, retailers offered the most discounts over the Black Friday weekend, which included Thanksgiving, Black Friday and Cyber Monday.

“Most retailers have their highest quarterly sales revenue during this time and it really becomes a make or break situation for them,” added Innotrac Senior Director of eCommerce and Marketing, Melissa O’Keefe. “One of the ways retailers have addressed this challenge is through promotions for their online business. Consumers today expect aggressive promotions, especially during the holiday shopping season, so we decided to take an in-depth look at what some of the leading retailers are actually doing.”

The Innotrac study looked particularly at the placement of offers on eCommerce websites (such as being above the fold or located further down), the amount of the discount and whether a promotion code was required. All of these different factors can affect redemption and overall customer satisfaction, which is crucial to consider when deploying any promotions. 

Keeping profit margins in mind

While offering heavy discounts is an effective way to attract customers to eCommerce websites, it’s paramount that retailers also keep profit margins in mind. It’s easy to get overwhelmed by customer traffic, higher sales numbers and positive feedback from customers but completely forget that profit is the ultimate goal. 

In fact, the Washington Post recently reported that many retailers found their profit margins declining over the holiday season because of excessive discounting. Major brands such as Abercrombie & Fitch, K-Mart and Sears all saw relatively strong growths in terms of online sales, but the profit margins didn’t quite match up. For many merchants, this may even come as a disappointment since the holiday season is when they make the bulk of their sales.

For the next holiday season (and when planning sales throughout the year), it’s crucial that merchants carefully consider which items they are discounting, why they are doing so, and how online sales will increase. Retailers must consider that some of the discounted products may sell at full price, or they may be able to generate more online sales if they offer deeper discounts on slow-moving inventory. The balance is to strategically discount the right products in order to increase online sales while maintaining healthy profit margins.