Discounting (or running promotions with discounts) is one of the most popular — and arguably among the most effective — ways to drive sales. According to a study by Software Advice, a POS system research site, discounting is the top “pricing strategy for retailers across all sectors, used by 97 percent of survey respondents.”
However, as effective as they are, discounts can be a double-edged sword. While slashing prices certainly attracts customers, executing discounts the wrong way could end up killing your profits or enticing the wrong types of shoppers (i.e. those who’ll only buy from you when you lower your prices.)
That’s why if you’re looking to run sales or discounts at your store, it’s important to plan your promotions well and craft thoughtful offers to meet your objectives. Go through the pointers below for some tips and ideas on how to implement discounts correctly.
1. Define your objectives
Blindly implementing discounts is one of the biggest mistakes you can make as a retailer. Before running a sale or offering a hot new promo, see to it that you have a clearly defined purpose for doing so.
Are you doing it because you want to gain new customers or are you looking to engage existing ones? Do you want to lure in people who haven’t bought from you in a while? Are you looking to get rid of excess stock? These are just some of the questions you should answer when crafting your offers.
Different objectives call for different types of discounts. For example, if your purpose is customer acquisition, then you’ll probably want to implement more aggressive tactics such as loss leaders or store-wide sales, to attract the most number of people. On the other hand, if you’re looking to re-engage people who have purchased from you in the past, then you’ll want to add a personal touch to your offers and run customized deals. (More on these tactics below.)
Clearly defining your purposes for discounting will enable you to make decisions on what products to put on sale, when to do it, and most important, how big of a discount to offer.
It’ll also help you measure the results of your campaigns, so you can figure out how to improve going forward.
2. Segment shoppers and tailor offers accordingly
Creating discounts or offers based on different customers’ preferences or purchase histories can greatly increase conversions. Take the time to segment your customer base so you can market and sell to them accordingly.
One way of doing this is to set up customer profiles. Create profiles outlining the price sensitivity and shopping habits of different customers and use them as tools to determine the kinds of discounts to offer each shopper type.
Below are some sample customer profiles that you can create:
Sending out tailored offers may sound tricky, but it’s actually quite doable if you have the right tools. Make use of a robust customer management system that gives you a history of what shoppers bought from you. That way, you’ll be able to easily see who’s buying what, and how much each customer has spent.
3. Make sure the timing is right
When it comes to discounts and offers, timing can be just as important as relevance. Sending out deals at just the right time (i.e. when customers need them) will greatly increase your conversion rates.
This is why you also have to pay attention to when shoppers are buying from you. For instance, if you have a lot of customers who buy at the end of the month, then schedule your offers around that time.
Also remember that the question of when a customer looked at a product or bought something can provide insights into what they might buy next and when. For example, Blue Nile, an online jewelry retailer, times its wedding band emails based on its estimates on when customers got engaged.
See if you can do something similar in your business. Let’s say you sell baby clothing and merchandise, and a customer just bought some clothes for her three-month-old son. Using that data, you might be able to predict what she’ll need in six months or a year, and you can make relevant product recommendations or offers.
4. Be mindful of your margins
To ensure that you don’t give away too much or end up losing money with your discounts, set an “acceptable range of margin” for your products. That’s what Spreadshirt, a global platform for personalized clothing and accessories does when they implement discounts.
“We have an acceptable range of margin per product type that guides our percentage off type promotions, unless the goal is aggressive new customer acquisition,” shares Adam Lasky, Head of D2C Marketing North America.
When it comes to their steeper discounts, Adam says they’re hoping that “in the long run the customer lifetime value or cost of acquisition from that promotion will make up for a more aggressive promotion.”
5. Implement psychological pricing
Another way to offer deals without giving away too much or hurting your brand is to implement creative pricing and discount strategies.
A great example of a brand that did this is eyewear merchant Rivet & Sway. Rather than simply putting items on sale, the company implemented a pricing strategy wherein shoppers could purchase eyewear at $169, but were incentivized to buy additional pairs for $99.
This enabled Rivet & Sway to entice shoppers to buy without training them to wait around for deals.
6. Test different discounting tactics
The right discount method will vary, depending on your business, products, and customers. The best way to figure it all out? Implement various tactics and see what works best.
For example, some retailers might find success with percentage discounts like 10% off, while others might benefit more from dollar-amount off promotions, like $5 off.
As Craig Simpson, a contributor at Entrepreneur.com writes, what matters to your customers is “their initial impression of what sounds like a good deal.” He proceeds to give the following examples (emphasis added):
Let’s say your product is something fairly inexpensive, like a supplement that regularly sells for $25 for a bottle that contains a one-month supply. I would predict that an offer for 40% off would do much better than an offer of $10 off, even though the actual value of the two offers is equivalent.
For a more expensive product, perhaps a piece of exercise equipment that normally sells for $350, I would predict that an offer of $50 off would do better than an offer of 15% off – even though the 15% offer is actually slightly better. The $50 offer sounds like a substantial amount of money. And for most people, figuring what 15% of $350 is may seem like too much work.
If you’re on the fence between a percentage or a dollar amount discount, we recommend that you do the math AND look at your promotion from a psychological standpoint so you can figure out the best type to implement.
You should also profit–test your offers to ensure that you’re not losing money. “Percent-off sales are fairly simple to profit-test,” says Krista Fabregas, a retail analyst at FitSmallBusiness.com. “If net profit numbers don’t hold for a 20% discount, we move it to 15% off and still sell more than if we offered a flat amount, like “$5 off.” Oddly, even if “$5 off” has the greater savings after doing the math, the percent-promotion tends to convert better.”
7. Run conditional promotions
A good way to protect your margins while implementing discounts is to set conditions. Rather than running blanket promotions (e.g., “$10 off any purchase” or 25% off all items), set certain limits or conditions that customers have to meet before they can redeem the offer.
These conditions could be:
- Buy x number of items and get % off
- Spend x amount to save %
- Buy specific items/SKUs to save %
- Buy and get one or more items for free or on discount
- Spend and get one or more items for free or on discount
Another condition could be to offer discounts exclusively to customers who are part of your loyalty program. Here’s a great example from Starbucks, which previously ran a member exclusive sale event. They emailed customers who were part of their loyalty program and offered 20% off select products.
8. Put the spotlight on new items *first*
Another company that was able to successfully revamp their deal strategy is apparel retail chain Express. In addition to running fewer sale events, the retailer started moving their sale items to the back of the store, to increase sales for their fashionable (but full priced) products at the front.
Doing so helped Express encourage customers to buy their new and full priced items, without necessarily excluding shoppers looking for deals.
9. Promote impulse buys, upselling and cross-selling
Discounts can drive more people to your store, so take advantage of the increase in foot traffic, by upselling or cross-selling. Encourage your associates to suggest products or upgrades to customers shopping around in your store.
Consider the items that you’re putting on sale then come up with possible product recommendations in advance, so your associates know exactly what to recommend to your customers.
Let’s say you’re selling a certain style of jeans for a discount. Identify accessories or other outfit pieces that would go well with that pair of jeans, then make sure your employees talk about those items when they’re interacting with shoppers.
Also, consider this tip when you’re merchandising your store. Create displays that can cross-sell or upsell for you. Going back to the jeans example, you could set up mannequins wearing well-coordinated outfits featuring the jeans that are on sale, so customers will have a better idea of what they could buy together with their pair of jeans.
And if you don’t have displays that promote impulse buys, be sure to set them up. Again, you want to get the most out of the “sale traffic” that you’re driving to your shop. An excellent way to earn more out of each transaction is by getting customers to notice items that they can purchase on the fly.
Such items could include small accessories at the checkout counter, travel-sized merchandise, or practical everyday things.
10. Offer discounts to select consumer groups
You can also consider offering exclusive discounts to specific groups of consumers (ex. students, military, senior citizens etc.). According to Marci Hansen, CMO of eligibility verification solution SheerID, this strategy allows retailers to leverage discounts without hurting their margins or being defined as a discount brand.
One company that does this well is The Great Wolf Lodge, a resort and waterpark in North America. Great Wolf has a program called “Howling Heroes,” which exclusively gives an all year 30% discount to military (active, retired and veteran), fire, emergency medical service personnel, 911 dispatchers, police and correctional officers.
“Strategically offering exclusive discounts instead of site-wide price reductions or coupon codes gives retailers more control over their margins and the growth of their core customer base,” said Marci. “By offering special discounts or perks to educators and members of the military community, marketers can attract new, loyal customers without diminishing their overall brand.”
“Existing customers don’t begrudge retailers who offer military, student, or educator discounts, the way that they do if a company offers new customer discounts. In fact, most consumers look favorably upon businesses that honor military service and value education,” she added.
If you enjoyed this post, be sure to check out Vend’s guide to increasing sales. This handy resource offers 10 proven tactics for boosting retail sales and improving your bottom line.
Specifically, you will:
- Discover how to turn savvy shoppers into loyal customers
- Learn how to add real and perceived value to each sale
- Discover the most effective ways to set yourself apart from your competitors
You don’t have to lose money or hurt your brand when you offer discounts. As we pointed out above, a creative and well-executed discount strategy with clear objectives can help you gain sales and attract the right types of customers.
About Francesca Nicasio
Francesca Nicasio is Vend's Retail Expert and Content Strategist. She writes about trends, tips, and other cool things that enable retailers to increase sales, serve customers better, and be more awesome overall. She's also the author of Retail Survival of the Fittest, a free eBook to help retailers future-proof their stores. Connect with her on LinkedIn, Twitter, or Google+.