If your eyes have ever lit up at the sight of a 20% off label, you already know first hand that retail customers love a discount.
However, when overused, discounts not only attract the wrong kind of customer to your brand, they can change your relationship with previously loyal customers for the worse.
Here are three ways discounts damage your brand:
The most immediate impact of regular discounts is lower margins. When customers are consistently paying 20% less, say, than the retail price, the amount of profit you make per unit goes down. Spread over a long period of time and over thousands of transactions, that can have a significant impact on your revenue.
Brands often use discounts to entice new customers. This may work the first time: but from the start of the relationship, you’re training these customers to expect a lower price. To turn them into long-term customers, you’ll have to keep offering regular discounts. Hence discount-seekers have the lowest lifetime value (LTV): You either have to lower your prices to keep them, or you lose them entirely when you stop doing discounts.
These bad habits can also transfer to your loyal customers. Initially, they think of discounts as a way to get a product they like for less money: But over time, they will also start perceiving the regular price as too expensive, and the discount as the fair price. Eventually, no one will be willing to pay full price for your brand.
The baby boomer generation — people born between 1946 and 1964 — typically prioritizes discounts above all other incentives. But that’s changing with upcoming generations.
Millennials (born 1981 to 1996) and Generation Z (born in or after 1997) are more likely to factor brands’ perceived ethics into purchasing decisions.
This concern is partly because individuals are thinking more carefully about what kind of companies their money is supporting. But it’s also because they’re aware that it shapes how others view them because supporting certain brands associates them with the brands’ values.
Buying a particular brand today isn’t just about its logo: It’s about consciously taking sides.
We can thank the internet for this trend. We have more access than ever to companies’ mission statements and charitable claims. And via social networks, we have more opportunity to showcase the brands we use in our daily lives. That means we know more about brands’ ethics, we know who’s buying what, and we know other people know what we’re buying.
This shift to conscious shopping seems to be happening at all levels of commerce.
Shoppers have always been willing to spend more money for higher quality — if they could afford it. Now, more of us are also willing to factor in ethical concerns. Unlike with quality considerations, this trend isn’t just for luxury shoppers.
Even affordable brands like Givz customer H&M have found success with campaigns that offered charitable donations over discounts.
Cause marketing is connecting a for-profit business to a non-profit cause — or many causes. This obviously appeals to the people who want their purchases to make a difference, and identifies your brand as one that gives back.
However, shoppers are an increasingly savvy bunch, and they will know if you aren’t living up to your claims. Here’s how Givz can help you more easily navigate cause marketing in a way that really helps charities and makes your customers happy.
Teaming up with a charity isn’t as simple as declaring that you’ll give a certain percentage of your profits to that organization. If you want to do it that way, you have to sign a commercial co-venture agreement that establishes a legal relationship.
In addition to the legal headache, these claims don’t carry as much sway with shoppers anymore. It feels too vague: You’re told that 10% of your purchase, say, is going to a charity, but you never actually see the direct evidence.
With Givz, the donation process is a closed loop. After the shopper makes a purchase, they’re instantly given the option to donate on the confirmation page. (If they don’t do it immediately, they have 14 days after checkout to come back.)
They’re actively involved in the process: it’s their clicks that make the donation happen. And it’s in their own name. They feel good about their purchase and good about the brand.
It’s natural to want money you’re donating on behalf of your customers to go to a cause you support. Or at least one you don’t hate.
With Givz, Shopify store owners can choose to give their customers only one charity to donate to. Or you can highlight a few different causes that are especially close to your heart, while giving the customer the option to search for one they like. There are 250,000 to choose from through the PayPal Giving Fund, Givz’s giving partner.
It’s your choice. But you may find that the donation resonates more deeply with customers when you trust them to choose for themselves. Knowing that they’re helping a non-profit they love feels better than funding one they don’t really care about.
You can also use this as an opportunity to do market research. If a large proportion of your customers are choosing to donate to a cause you oppose, ask yourself how you’ve attracted so many people completely at odds with your personal beliefs.
Moving from discounts to donations spares your brand the financial and reputational damage that comes with constantly lowering prices. And paying for those donations can actually cost less than offering discounts.
Let’s say Brand A is offering $20 off every $100 purchase, and Brand B is donating $20 to a charity for every $100 purchase.
In both cases, the brand is on the hook for $20 per $100 purchase. In the case of Brand A, everyone is eligible for the discount, but with Brand B, only about 25% of eligible customers actually choose to make a donation.
This means that across four donations, Brand A is paying an average of $80 in discounts, whereas Brand B will only pay an average of $5 in donations.
Paying it forward pays back.
This blog post is based on an episode of The Unofficial Shopify podcast featuring Givz founder and CEO Andrew Forman.
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