As the founder of a startup that enables e-commerce stores to use data science and through my previous work at email marketing optimization for hundreds of customers, I've seen firsthand how powerful—and potentially dangerous—discounts and promotions can be. They boost sales during slow periods, offer new customers a cheaper entry point and improve relationships with existing customers. However, they can also turn customers into discount hunters.

In this article, I'll share my battle-tested five-step strategy for creating promotions that not only increase short-term sales, but also increase customer lifetime value. By the end of this section, you will learn how to:

1. Identify your most promising customer segments for promotions.
2. Choose the right products to promote for maximum impact.
3. Calculate discounts that drive sales without detracting from your brand.
4. Time your promotions for optimal engagement.
5. Measure the long-term success of your promotional campaigns.

Step 1: Target the right customers

E-commerce businesses typically have three types of customers:

1. Sole customers: Often representing the majority of your customers, these are customers who have bought only once.
2. Occasional customers: Those who have made two or three purchases.
3. Loyal customers: They are your driving force – these are the customers who would tell their friends about your products and buy from you regularly.

According to Harvard Business Reviewacquiring a new customer is five to 25 times more expensive than retaining an existing one. To increase customer retention, it is much easier to move customers from “occasional” to “loyal” than from “one-time” to “occasional”. That's because the single group lacks a crucial characteristic: proven intent to repurchase.

Related: Customer loyalty is your holy grail for success. Here's how to cultivate it.

Step 2: Find the product that attracts customers

Now that you have chosen the target audience for your promotion, the next step is to choose which products to promote. Since the goal is to increase loyalty and retention, your best bet is on products that keep bringing people back to your store. These are the products that turned casual customers into regulars. Despite the variety, the vast majority of McDonald's customers keep coming back for the Big Mac, so you need to find your Big Mac. To find this star product, simply examine your sales data to see which product(s) have generated the most revenue from repeat sales.

Another approach is to find out if you have a gateway product. These are products that your customers can buy first, which will then lead them to other products that drive repeat sales. For example, if you run an online business that sells specialty tea, your gateway product might be a sampler box containing a collection of curated blends for customers to try. After tasting them, they may pick a favorite and continue to buy it from you regularly.

Step 3: Strategic discounting

With your target audience and product chosen ready, the only thing left is to create the details of your promotion. These details include time, copy and discount. However, while doing so, it is essential to maintain a strategic approach to discounting. Discounting your products too much can make customers perceive your brand as less valuable. The goal is not to force people to buy because the price is extremely low, but to encourage those who are already considering a purchase to take action. According to a survey conducted by Harvard Business Review95% of sales executives at Fortune 500 companies keep discounts below 25% so as not to erode the perception of product value.

Step 4: Time your promotions strategically

The key to timing promotions is planning ahead and analyzing your data. It's important to plan ahead because jamming too many promotions too close together will yield much poorer results than having enough time to space them out.

In addition, you should analyze the response rate of your customers to your previous emails and promotions by time of day and day of the week. For example, working professionals are most likely to engage with your promotions Tuesday through Friday. or study by Hubspot found that promotional emails sent on Tuesdays have the highest engagement (27%), followed by Mondays (19%). However, your specific audience may vary, so always rely on your data to determine the optimal timing for your promotions and consider multiple A/B testing options to find what works best.

Once you've identified the optimal time, you can now put the puzzle together and launch your campaign.

Step 5: Monitor and analyze

After sending the promotion to your customers and reaping the short-term profits, the work is still not done. The goal was not simply to generate an increase in revenue. The goal is to increase customer lifetime value by transforming them from occasional customers to loyal ones.

Measuring the success of such a campaign takes time and patience. This is especially true if your business sells high-ticket items where the repeat purchase cycle is long, e.g. furniture. To get a good estimate of how many customers converted, a good idea is to expect twice the length of your store's repeat purchase cycle. For example, if the average time between two consecutive orders from the same customers is two months, then you may have to wait up to four months to observe the true effect of your campaign on customer lifetime value.

Related: Partners on Partnerships: How Authentic Customer Lifetime Value Can Drive Growth

CONCLUSION

Promotions and discounts can be a double-edged sword, but strategic thinking and data analysis can be a transformative tool that increases your customer lifetime value. By implementing this five-step strategy, you can turn casual customers into regular customers who buy from you repeatedly. As you apply these principles, you will not only see an increase in immediate sales, but you will also cultivate a loyal customer base that drives sustainable growth for your e-commerce business. These loyal customers, in turn, will become evangelists for your products and drive even more sales and revenue in ways that can't even be tracked in a KPI.