A Look Back at Holiday 2016: Avoiding the Curse of Deep Discounts to Improve Profitability by 15%
Mark Stibbe
In case you missed it, the 2016 holiday shopping season was unprecedented.  In addition to over $7B in sales during Cyber Weekend, we saw a surge in mobile shoppers, a deeper investment in shopper experience, and creative new merchandising strategies to engage shoppers in holiday promotions.  Yet despite such strong results, there has been criticism around retailers who rely on deep discounting to move inventory during the holiday season.  Sacrificing gross margin and profitability is never a priority, so why would some retailers take the risk during the biggest shopping event of the year? Below we take a look at how retailers might leverage better product data to improve their margin and create an inspiring shopping experience for their customers.  Rich, structured product data is essential in enabling shoppers to find exactly what they’re looking for and driving strong results during the time retailers’ want it most.
  1. Extended Product Attribution Could Mean Better Profitability
I’ll start with the punchline here: retailers that invest in leveraging extended or enriched product attributes stand to gain about 7% of additional gross margin during the holiday shopping season. Even better, on heavy promotion days like Black Friday or Cyber Monday, they may see gross margin jump anywhere from 15%-20%. The truth is, this shopping season saw a lot of retailers leveraging heavy promotions and discounts, likely in an effort to move inventory.  What’s interesting though, is that we saw significant performance lifts for Edgecase clients who enabled their shoppers with extended product attribution (features, benefits, formula, and use) vs. those who relied only on standard attributes (price, color, and size).  Put simply, leveraging better data could help drive a much more profitable discounting strategy. For example, let’s say a shopper lands on your site and is looking for “holiday dinner plates”. Sure, you might have dinner plates that are specifically designed for holiday, but you may also recommend plates with gold trim, red stripes, or even green leaves for holiday as well.  Retailers that leverage enriched, structured  product data and tag appropriate products with the right values (e.g.: holiday) are better equipped to support thematic searches like this one and may not have to discount as heavily below MSRP.  Not to mention, they’ll enjoy higher profit per sale.
  1. Profit Primetime is the Second Week of December
Have you ever been working through your Christmas list, found the perfect thing and then decided to hold out until either it was 1) discounted or 2) you got a coupon in your inbox? It’s my go-to strategy for holiday shopping, and surprisingly, a lot of other shoppers implemented a similar one in 2016 as well. However, based on our findings, a lot of those shoppers gave in and purchased by the second week of December, gifting retailers with a steady stream of sales. Despite hefty criticism around retailers heavily leveraging promotions this holiday season, almost half (46%) of all purchased items were discounted less than 20%. With discounts like that, how did retailers managed to maximize their profits?  Well, savvy merchants who held out on major promotions until closer to Christmas were rewarded with extra gross margin that would have otherwise been lost if they pulled the “coupon trigger” too soon.  In fact, the portion of total sales that included no discounted products rose from a low of 28% to a holiday high of 42% during the first and second weeks of December.
  1. When It Comes to Coupons, Quality Beats Quantity
As retailers’ gear up for the holiday season, there is likely a significant amount of time that goes into coupons, discounts, and promotions.  Too many promotions and deep discounts could erode margins, while not enough of them may drive shoppers to another site and/or create excess, unwanted inventory.  It’s a tough balance, particularly with so many creative holiday merchandising strategies all competing for the sale. The good news is, all hope for implementing a successful promotion plan is not lost. Based on our own clients results, we’ve seen that the key to maximizing margin during holiday is to avoid sending purely discount-oriented content to your shoppers, and instead focus on crafting high-value, product-content rich promotions, that leverage enriched attribution (ahem, the same attributes that could improve profits upwards of 15%!).  Shoppers have written their lists and are on the hunt for items that fit specific needs and preferences: a non-iron, wrinkle-free shirt for dad, a tablet for mom to edit photos and send email, or a set of satin polka-dot pajamas for grandma.  Limiting shoppers to discount-centric options with basic navigation on a website, hinder their ability to quickly and easily browse relevant options. By leveraging shopper-centric terms and attributes in targeted outreach, folks are more inclined to click through because they feel confident, knowing they’ll find what they’re looking for.
*All Data Within Blog is Based on Internal GroupBy Research.