What are promotional codes and how do they work?

Promotional codes allow you to market the products on your ecommerce website by providing customers with a discount on certain items. The discount associated with the code can take money off individual products or the total order. The discount can either be a percentage or a specific dollar amount. Promo codes also provide customers with free shipping or gift-wrapping. This marketing strategy essentially gives customers yet another reason to buy your products.

According to Microsoft, a promotional code, sometimes known as coupon code or discount code, is made up of a combination of numbers and letters. It's used for specific purposes, such as a holiday marketing campaign.

Why promotional codes work

When a store issues promotional codes, they're providing customers with an incentive to buy, which benefits both the customer and the business. Customers get the products they want for a lower price, and the ecommerce store generates revenue. One of the most useful things about promotional codes is that they work well with both new and returning customers. These incentives even have a direct impact on the overall shopping experience, according to research conducted by the Center for Neuroeconomics Studies at Claremont Graduate University.

"Getting a coupon, as hard as it is to believe, is physically shown to be more enjoyable than getting a gift," said Paul J. Zak, director of the Center for Neuroeconomics Studies at Claremont Graduate University.

The study showed that people who received promotional codes had heightened levels of oxytocin, which is a hormone that creates feelings of happiness.

Tracking marketing efforts with promotional codes

Promotional codes are an effective way to track your marketing efforts to see which platforms are generating the most traffic or leading to conversions, according to Inc. magazine. Store owners can track their efforts by attaching a certain promo code to a specific marketing campaign or advertisement. Different codes can trigger the same discount, so you don't have to create a different discount for every advertisement. You just need a new promo code. For example, you could create slightly different codes (SaleFB, SaleTW, SalePT) so that any ads or marketing efforts on Facebook, Twitter and Pinterest have unique, platform-specific promotional codes, according to Inc.

Assigning specific numbers and letters to a certain ad is particularly helpful if a customer sees the promotion advertised in an email or on social media but doesn't click through immediately to follow through on the promotion. You'll still be able to capture and analyze the ROI of advertising on that platform because by entering the tailored promotion code, the customer is also telling you where he or she saw the sale advertised.

How to use promotional codes

When a customer enters a promotion code during the checkout process, the store confirms that all conditions of the promotion are satisfied before validation. If the promotion code offers 20 percent off shopping carts of $200 or more, for instance, the code will not work if the minimum threshold hasn't been met. You can also tailor the requirements to exclude certain brands or products.

Using multiple codes

Depending on your site, you may be able to allow customers to enter multiple promotion codes or limit customers to using only one code. While deciding how many codes a customer is allowed to use is up to you, it's important to ensure the transaction is still profitable for you no matter what combination of codes are used.

What are the different types of promotional codes?

There are three different types of promotional codes store owners can choose from.

• Public codes Anyone can see or use a public promo code. These are useful for enticing new customers and encouraging previous shoppers to come back for more.

• Private codes Stores use private codes to target a specific group of people. Commonly provided to loyal customers for special shopping opportunities, such as first-time shoppers, private codes are a good way to bring in new customers.

• Restricted codes A code that is restricted is targeted to a single user and can only be used once. For instance, you might send a customer a restricted code as an apology for a delayed shipment or as a thank-you for making their 50th purchase with your site.

In most cases, it's best to utilize all three types of promotional codes on your site. This will ensure that you're connecting and providing a wide variety of customers with a reason to make purchases.