Luring shoppers in with the promise of money off or a cheeky little discount seems like a no-brainer. The customer gets something out of it and you also get something out of it (a new customer you can work your magic on).
In fact, discounts are so common that 97% of retailers cite them as their top pricing strategy.
Here’s the million-dollar question though: are retailers forced to discount their products because everyone else is doing it? It’s a bit like the chicken and the egg debate. Retailers might feel the pull to discount simply because their competitors are and because consumers today almost expect to get some kind of money off.
While discounts can be a good way to nurture existing customers and drive sales on promotional offers, it’s important to have a strategy in place so that customers don’t come to expect money off or start to devalue your products because they’re always on offer at cut prices.
Discount strategies are campaigns retailers put in place to sell products at a lower price.
Essentially, the goal is to sell products in high volumes thanks to the money-off incentive. They can be a good way to kickstart a new product line, secure new customers in bulk, and reward loyal customers.
However, if you’re regularly running discounts, it’s important to decrease production costs and stay competitive to make sure you’re bottom line isn’t too badly damaged.
Discounts are a surefire way to bring in swathes of new customers on short notice, but they don’t always have the desired effect.
In fact, if you don’t implement a pricing strategy correctly, it can have a detrimental impact on brand image, customer loyalties, and sales revenue.
Research has shown that while a customer’s perceived savings creates a positive experience when using discounts, it has a negative impact on their perception of the product’s quality.
The sweet spot lies somewhere between customers have a high perception of quality and a high perception of savings; this makes them feel like they’ve got value from the purchase.
So, yes, discounts can (and do) increase sales for retailers, but they aren’t always the most sustainable way to elicit growth.
The sheer amount of online competition today makes it near-on impossible to stand out. Brands that are able to establish themselves in a distinct segment of the market and stay true to their values and mission tend to have the most success.
While throwing discount after discount at consumers can increase brand awareness and attract new customers on the regular, it doesn’t necessarily build your brand – or, at least, it doesn’t necessarily build the kind of brand you want to build.
Before you consider going all out on discounts, think about:
Brands with a solid understanding of who they are and who they serve don’t need to push discounts to attract new buyers. They get them organically and, if they do run discounts, they align perfectly with the brand’s overall goals and objectives.
Take Apple as an example. They never discount their products, and instead, rely on a sense of newness and urgency to reel in new buyers. However, they do offer discounts for trade-ins and upgrades which keeps customers loyal and bolsters their image as a high-quality, luxury brand.
The outdoor clothing brand Canada Goose is the same.
In addition to having a collection of sale items, you might also occasionally run site-wide sales. For large brands, this is common practice during holiday weekends.
Some products rarely go on sale. American Girl is a great example. To keep their brand special, they don’t discount their core product line, which is of course the dolls. However, to give parents a break, they will occasionally run a savings campaign that gives a percentage off of a minimum purchase.
This type of ecommerce promotion is effective because it can kick shoppers into high gear. If someone has been eyeing an expensive product for a while, this sort of promotion can encourage them to finally complete the purchase. This also reinforces the exclusivity of your brand, and that certain products are always the original price.
In fact, they’re so adamant about never offering discounts that they have a whole section dedicated to it on their FAQ page:
While Apple sometimes does run the occasional discount around key shopping holidays, Canada Goose does not, and this has become an important part of their brand – and guess what? They still make a huge amount of sales and have an incredibly loyal customer base.
Let’s rewind for a moment to the fashion industry in 2008.
Once the recession had hit, retailers found themselves up against a new hurdle: a dependence on discounts. When sales tanked, stores leaned heavily on discounts to clear out existing inventory and to bump sales back up.
Customers soon came to expect discounts and for many years post-recession even refused to buy clothes at full price. It meant that brands had their margins squeezed even tighter after years of financial uncertainty.
Why are we harking back to 2008? Because the coronavirus pandemic has had a similar impact on consumer behavior.
Loss of jobs and a rocky financial future has meant many shoppers are wary of paying full price for a product – especially when it’s a dead cert that they can get it at a fraction of the cost somewhere else.
As brick-and-mortar stores were forced to close their doors, retailers found themselves with too much inventory. And, in a bid to pull back their finances from the red and get rid of overflowing stock, they slashed prices across the board. Which has, once again, led to customers expecting discounts.
Even high-end retailers have been affected: Net-a-Porter had 30% of its stock on discount on March 25 last year compared to less than 1% of stock the year before.
Today, Net-a-Porter’s homepage is littered with the promise of money off. The header screams “sale”, with up to 80% off products, they offer new customers 10% off their first order, and there is even a new addition to the navigation bar dedicated solely to sales.
Before we dive into some of the most popular discount strategies and how they can be used strategically to increase sales without affecting customer perception or your bottom line, let’s quickly take a look at the alternatives to discounting.
We’ll be the ones to say it out loud: discounting is often the lazy option. It’s what other brands are doing and it’s easy enough to create discount codes.
There are plenty of other ways you can attract new customers without sacrificing your revenue or brand image.
Givz ties all three of these elements together by replacing discounts with the option for customers to support their favorite charity. Instead of receiving money-off, customers can send a percentage of their spending to a chosen organization.
This does three things for retailers: it helps solidify their brand message and mission, it adds value to the shopper’s order without sacrificing revenue, and it creates meaningful interactions that generate engagement and loyalty.
H&M USA has leveraged Givz to create added value:
– Mario Moreno, H&M
In their emails, customers are offered the chance to get money to donate to a charitable cause when they spend over a certain amount on clothes.
We touched on this very briefly earlier when we mentioned that Apple occasionally runs discounts on key shopping holidays.
Seasonal discounts are campaigns run at certain times of the year to align with holidays or other annual events. For example, many brands (like Apple) discount products during Black Friday and Cyber Monday, while even more run sales to align with the changing seasons – how many times have you seen a “winter sale”, “summer sale”, or “fall sale” advertised? The answer is probably a lot.
The pros and cons of seasonal discounts
Boden offers shoppers up to 70% off in the New Year sale.
Jigsaw’s summer sale gives shoppers the chance to claim 50% off their order.
House of Fraser offers 60% off on their annual Black Friday sale.
Discounts are often part of a larger marketing strategy with the ultimate goal of attracting and converting new customers.
Promotional discounts are incentives that usually tie into a marketing campaign. They often come in the form of a discount code that customers can apply at checkout to get money off.
There are a number of promotional strategies you regularly see in play:
Examples or promotional campaigns in action
TopShop gives customers 10% off to spend on their birthday.
Mejuri gives customers the chance to claim 10% off their first order.
Eight Sleep gives customers a whopping $300 off their new product – if they’re quick.
The more a customer buys, the more they spend. It’s simple math. But what if the more they buy, the less they spend?
What are volume discounts?
Volume discounts are when a retailer encourages consumers to buy in bulk to unlock a discount. For example, one t-shirt might cost $25 but shoppers are able to get two t-shirts for $40. The idea is that the more products customers buy, the more they spend and the more they save.
The pros and cons of volume discounts
Examples of volume discounts in action
At Bombas, customers get a 15% discount when they buy a pack of 12 socks rather than individual items.
Customers get money off when they increase the number of cranberry sauces they buy.
Customers or companies buying wholesale get a discount the more units of this Maybelline mascara they buy.
The current abandoned cart rate sits at 69.80%. That means that almost three-quarters of customers who add items to their cart don’t go on to make a purchase.
Abandoned cart discounts give customers the chance to claim money off if they return to their abandoned cart and make a purchase. Doing this reminds shoppers about their initial interest in your products and gives them the nudge they might need to finally convert.
The pros and cons of abandoned cart discounts
Examples of abandoned cart discounts in action
Alex Mill offers customers a 15% discount if they return to their cart and make a purchase.
Saatchi Art encourages customers to complete their purchase with a 10% discount. They also add a sense of urgency with their “high sell-out risk” one-liner.
Birchbox reminds customers to finish their order with the promise of 10% off.
Research by Adobe shows that a company’s top 10% of consumers spend three times more per order, and the top 1% spend up to five times more. On top of this, the more purchases your customers make, the more likely they are to return to your website. After the third order, the consumer is 54% more likely to complete another order in the future.
Rewarding loyal customers increases the chances of them coming back for more.
What are loyalty discounts?
Loyalty discounts reward your best customers. Instead of throwing discounts at new and potential shoppers, they give stalwart buyers the chance to cash in as a reward for their ongoing custom. It can include things like a discount after every third order, a discount when a customer refers a friend, or a discount that can be unlocked when a shopper spends a certain amount.
The pros and cons of loyalty discounts
Examples of loyalty discounts in action
Barnes & Noble gives loyal customers a huge discount every time they buy in-store.
Moda gives 10% off to customers who refer a friend.
DSW encourages customers to become VIP members, where they’ll receive 20% off every order and unlock free shipping.
Discount strategies can be irresistible to brands who want to generate an influx of new customers in a short space of time. But in the long-term, they can have a detrimental impact on your bottom line and affect the vision consumers have of your brand.
Instead of focusing on how you can convince customers to buy from you by giving them money off, consider sustainable growth efforts like:
Instead of offering discounts, put the power in the hands of your customers. Givz offers shoppers the chance to donate to a charity of their choice when they spend a certain amount with you, tapping into the idea that customers want to buy from brands with the same values as them and strengthening the connection you have.
For Tervis, working with Givz allowed them to smash their sales goals:
– Amanda Pasko, Tervis
The brand was able to reiterate its staunch, sustainable mindset while enticing new customers with the chance to get money to donate. This incentive matched the brand’s top-level goals and objectives and tied into their overall brand message.
While discounts might have secured a swathe of new customers quickly, there’s no guarantee those buyers would stick around. Instead, Tervis has focused on attracting their ideal customer through incentives that are true to their heart.
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