Whether you’re trying to increase revenue or attract new customers, discounts may seem appealing at the outset. For many e-commerce stores, however, their discount strategy causes more harm than good.
Discounting too often or too much without prior strategic planning harms your business more than it helps.
For many e-commerce owners, discounts are an easy way to drive extra revenue, but in the long term, it’s damaging.
For long-term success, e-commerce owners should learn to implement discounts awaiting their strategy, not make discounts the entire system.
In this post, you’ll learn the potential dangers of discounting:
- Why heavily discounted stores could attract the wrong type of customer
- How overuse of discounts opens your store up to exploitation
- The importance of working out if your niche lends itself well to discounts
- The difficulty in stopping deals once you’ve started them.
We’ll then learn what you can do instead to ensure you’re still providing value, building a brand, and driving revenue for your customers without having to ruin profit margins.
- How to implement a loyalty program that gets customers to earn their discount
- Focus less on what you can take off and more on what you can add without offering discounts
- Utilize promotional strategies such as repeat customers through subscription or product bundling instead of direct discounts
- When discounting, segment your target customers.
Types of discount strategies & methods
There is a range of different types of discounts e-commerce store owners offer their customers. The type used will largely depend on the store’s strategy, the industry, and the types of products sold.
Tailor discounts, promotions, and offers to each specific vendor. The most popular methods used are:
- Percentage discount – This is where you offer shoppers a % off their purchase. A store might offer a % discount on specific products or for the entire order.
- Free delivery – Either store-wide free shipping or free shipping on offer when the shopper spends above a particular threshold.
- Cash discount – Compared to a % discount, a cash discount offers a set value. For instance, spend $40 and get $5 off.
- Volume and multi-buy – Offer discounts for shoppers purchasing more than one item, items from within the same category, or even any items in the store.
- Combination of product bundling – Specific product bundling gives shoppers a discount when purchasing a group of products commonly known to go together. For instance, pay $100 for just the console or pay $150 for the console, controller, and a game. This is effective if, when bought separately, the items would cost more than $150.
- Buy one, get one free – Shoppers purchase one item and are eligible to get another thing (usually the chaperone) free.
- Gifts – Spend over a certain amount, or buy for a particular category or specific product and get X item for free.
- Future discounts – Offer shoppers a % or cash discount on their next purchase. Entire shoppers usually use them to sign up for a mailing list. Implementing this discount on their second purchase ensures shoppers need to come back to redeem the offer.
Do you have a discount pricing strategy?
Many e-commerce owners confuse discount pricing strategies with discounting methods.
It’s an easy (but costly) mistake to make. Using a buy one get one free strategy or a % off approach without understanding how this supports business goals is problematic. This results in using discounting methods with no process behind it.
A discounting strategy will dictate the discount method used. For example, suppose you have surplus stock. You know that this stock is perishable, so there is a time element at play too. Throwing away the stock is costly, and because of the perishable nature, you need to sell it quickly.
You might decide to offer it for free with every purchase. You could look at store orders and know you average 500 orders per month.
If you have 500 surplus stock units, it’s safe to assume you could get rid of the products within the month.
Offering 50% off the surplus product without looking at data could lead to problems. If you were to check your data and saw on average per month you only sell 20 of the surplus products, you’re going to struggle to sell the 50 excess units within a month’s time frame.
It’s clear, then, that the discounting method should come after the discounting strategy.
Before deciding to discount your products, ask:
- Why are you using discounts on this product specifically?
- Why are you using discounts in the first place?
- Do profit margins and order history show evidence that discounts would work well on these products?
Heavily discounted stores attract the wrong type of customer
Some shoppers buy because of a brand, and others buy because of a discount. If your store constantly offers discounts, you’ll attract customers who look for values over brand loyalty.
Everyone knows by now that it costs more money to acquire a new customer than to retain an existing one. Instead of focusing on implementing as many discounts as possible, flip your discount pricing strategy around and offer customers value without simply offering them money off.
This way, you’ll attract the right type of customers and stop enticing those who buy to get the best deal.
Ben’s Bargains does what it says on the tin. Every product is discounted, and as such, customers know what they’re getting when they land at the store. Their aim is not to be a premium store but to offer their products at the best prices.
Over-use of discounts opens the doors to exploitation
If you run multiple discounts across your store simultaneously, you need to make sure they don’t conflict with each other.
For example, if you give customers a discount code for 15% off their next order but there’s another discount offer available for 25% off, which one do they use?
Customers may assume they can use both, and even then, do they take 40% off or take 25% off the 15% they already have?
It’s a minefield, made worse if you say the offers cannot be used simultaneously, making their original discount code redundant.
The more discount codes you offer, the harder it becomes to manage. Some stores offer customers discounts for signing up to a newsletter for % off the first order. How do you stop people from using fake emails to get subsequent discounts on further orders?
Combat this by ensuring the terms and conditions are transparent and available for customers to read. Decide the offer duration ahead of time to minimize the chance of conflicting offers and exploitation. For maximum success with discount pricing strategies, prior forethought should guarantee customers don’t become frustrated by your offers.
Does your store have the right products for discounts?
Not all products are suitable – if a discount pricing strategy includes all products, the first question is why?
If you sell products customers will likely buy multiple times a year, it makes sense to offer deals and adolescents to get those customers to come back. If your products are single-time purchases, discounts do not work as well. Those customers do not need to buy anything from you again.
It’s the same for single-product e-commerce stores. If you sell, for example, beds. How often do you think a customer would buy a bed? Offering discounts doesn’t mean they’ll be a lifelong customer as they only buy beds every X or so years.
It brings us back to our point that the discounting strategy you implement should reflect your store and products’ nature.
It’s hard to remove a discount pricing strategy once it’s in place
If you gave a dog a bone every day, they’d learn to expect it. How do you think the dog would respond if you decided not to give them the bone one day?
Humans, in some way, are similar to dogs: we’re creatures of habit and repetition. If your store is known to offer discounts, it’s hard to take them away. Whenever a customer buys from a store, they enter a transactional contract. More than that, though, they build a perception of the store and their products’ value.
If customers perceive your products’ value at the price they paid with their discount, you’ll struggle to sell the same product for more.
After all, if a customer has paid $30 for their products, why would they suddenly pay $40 unless the product’s value increased in line with the price.
There are, however, exceptions to this rule; seasonal discounts, for example, are a common occurrence with e-commerce and something consumers know to expect. So much so, Black Friday/Cyber Monday deals do so well as customers are worried about experiencing FOMO. They want to get their products at a rock-bottom price to get a good deal. Customers are more than likely willing to spend significantly more money than they would on any ordinary month. As a result, they do expect and appreciate deals.
If you spend nine months of the year with discounted products and three months of the year with prices raised, you’ll be training customers to wait for those three months until the prices drop again.
An alternative discount strategy to consider is a loyalty program.
Allowing customers to join your brand’s loyalty program is an excellent way to offer customers discounts limited to existing customers.
Gamifying the shopping experience encourages customers to spend more, stay loyal, and build a connection with your brand. In return, they expect a loyalty program that rewards their loyalty with offers and benefits that are achievable to get.
There’s no point in having a loyalty program whereby redeeming any of the offers is near impossible. Instead, create a blend of monetary and not offers combined with earning methods beyond just spending money.
If the only way a customer can redeem their loyalty rewards is by spending money, you’re likely to have decreased participation. Instead, allow them to earn points through an array of methods.
Dr. Axe, for example, allows customers to earn points for signing up to their mailing list, sharing their content on social media, and making purchases.
This incentivizes customers to become advocates for your brand and gives free advertising for your products and loyalty scheme.
Rather than inundate your site visitors with discount offer pop-ups as soon as they land on your site, focus on building a relationship with them that offers them plenty of rewards throughout the lifespan of their relationship with you.
Customers then use their loyalty points to get free products with their order when they make a purchase.
If loyalty programs aren’t right for your online store, why not implement a wheel of fortune tool within your store. This gamification method allows customers to “spin” a wheel to see what offer they might receive. It will enable you to create and decide your incentives and collect customers’ email addresses – a crucial element needed for long-term advocacy.
Don’t offer discounts; offer value.
Many premium stores never offer customer discounts, yet they still manage incredible revenue and profit each year. This is because they’ve spent time cultivating their brand image and building their perceived value.
By staying true to their brand, they don’t need to offer customers money off, as their customers are happy to pay the total price regardless.
That’s not to say discounts aren’t appreciated by customers, though. It’s also important to note that these stores have spent years building their brand status. For a new store, it might seem daunting to demand high prices without first building your loyal customer. However, there are ways to build brand value alongside offering new customers incentives to buy beyond simple % off discounts.
Consider offering a free gift with every purchase or free shipping if they spend over a specific amount to boost sales.
Why not try creating a subscription model within your store for specific products. If you sell an item, such as a reusable razor, it’s understandable that customers may return to buy additional razor heads after their initial purchase. Offering deals not only increases conversion rates customer lifetime value but ensures customers remain without your ecosystem. It gives provides your online store with a way to hit sales targets without reducing the sale price to an unmanageable level and the repeat customers generated from this will aid overall sales volume The subscription model also takes away the hassle of having to remember to reorder your products.
Segment your discount pricing strategy
Suppose you’re going to offer a discount. You’ve thought about why you want to offer discounts and how it supports your business. The extra step is to decide which customers should receive it by segmenting your customer base. In that case, create targeted discounts that make sense for the specific cohort of customers.
Consumers are used to discounts – it doesn’t stop them in their tracks. They’re used to seeing a store-wide 10% off code, so it doesn’t stop them in their tracks or encourage them to take action. Instead, you could offer specific customers a time-sensitive discount code that enables them to purchase within the allotted time frame.
If you segment your target customer before offering discounts, you can alter the messaging for the types of people eligible to use the discount offer.
No two customers are alike; as such, the discounts they receive should be different. It explains why 76% of consumers like personalized discounts over blanket-wide offers.
Discounting might seem like an excellent way to drive extra revenue and promote your business to a broader customer base but as a long-term strategy.
This post has indicated vital considerations before jumping in blind and offering discounts across your entire store. There’s a time and place for a discount strategy, and the right one provides excellent benefits. In situations where discounts aren’t the right strategy for your store, we’ve provided you with ideas you could implement that focus on offering additional benefits rather than taking off money.
But for your store’s profitability and success to thrive, ensure your discount methods used are backed up by a well-thought-out strategy that doesn’t harm your business in the long run.
If you’re ready to offer additional incentives and value, check out Vitals’ essential tools for Shopify users to grow their online stores.