Pratikkumar P. Gaikwad | 15 min read | July 14, 2020
Discount deals are one of the most successful solutions to rising retail revenue. But just because discount deals are common doesn’t mean that they’re always successful. Lowering your prices may lead to customers, but if you don’t make your sale properly, you could reduce your profits and even damage your brand and reputation.
It is important to weigh all the pros and cons of selling or discounting and to define your goals and actions. Here are some tips to help you get on your way.
2. Pros of discount pricing strategy
According to a study by Software Advice, discounting is the top “pricing strategy for retailers across all sectors used by 97% of survey respondents.”
Selling goods at a discount is a low-risk way to boost additional sales growth and attract consumers who have never used the products or services before.
Getting a discounted product can also make your customers feel good. A research conducted by Dr. Paul J. Zak, professor of neuroeconomics at Claremont Graduate University, showed that shoppers who earned a $10 voucher reported a 38 percent rise in oxytocin levels — a hormone correlated with confidence and happiness — and were 11 percent happier than those who did not receive a voucher.
In addition, their breathing rates decreased by 32 percent, their heart rate decreased by 5 percent, and their sweat levels were stated to be 20 times smaller than their peers. In other words, they feel more confident, which contributes to a better relationship with the company.
3. Cons of Discount Pricing Strategies
There is some inherent risk of offering a discount. Once your customers have your product or service, they might feel like it has lost its value. In a double-blind study conducted by TK, shoppers who paid discounted fares were less satisfied than shoppers who paid full fares. It is thought that those “paying higher rates expected better experience and shaped their assessment to meet their expectations.”
Discount pricing also carries the risk of ending up without much profit. Many discount purchases can come from new buyers, but you could still drop any profit margins to consumers that were already willing to purchase.
4. Define Your Goals
After weighing up the pros and cons of offering a discount, focus entirely on your mission so that you can stay competitive while delivering a cheaper price. There are various motives for applying for different forms of discounts, which is why you need to learn your priorities.
Here are a few common motivations for offering a discount:
Gain a prospective buyer
A lower price may allow consumers who have never tried your product or service before they want to take a chance on you. If they like what you’re selling, they’ll probably come back again, even after your sale is over.
Here, the goal is pretty simple: to sell as much merchandise as possible. These can be achieved in a number of ways, including discount bundles, preferential discounts, or incentives for participants of the loyalty program.
Re-engaging former customers
Using a discount to encourage brand loyalty in casual customers can be done through promotions such as loyalty programs. Data reveals that 55% of individuals participate in loyalty services to earn discounts on transactions. Not only does this make your existing clients feel special, but it also allows potential consumers to become fans and join your loyalty plan.
You also can deliver customized offers focused on previous orders made by your clients.
Dispose of Old Products
Often you need to get rid of the old one and make room for the new one, and discounted items will help with that. For eg, if you have an apparel store, you ‘d like to clear off your summer products because the fall months are nearer. The same can be said for the clearing of holiday items after the first of the year.
5. Try Different Methods
If you have a sale or coupon target, pick the sort of discount that fits better on the basis of your target.
Lower the price on a collection of products bought together, as opposed to reducing the price of only one good or service. Such promotions will help you increase your overall purchase size by selling multiple items in a single order. With each online sale in this scenario, more items are sold, more revenue is made per order, and costs per order are reduced.
It’s always a way to combine goods that aren’t good sellers with things that have proved to be bestsellers. Be sure that you evaluate the sales of the less common products and see how they improve after the discount and recommend bundling products that consumers are either shopping together or that will help fix the issue in a similar manner.
For starters, put together a body wash with face lotion or a cookbook with local spices.
Buy One, Get One Free
Often the reduction is not enough to draw further interest. A research released in the Journal of Advertising showed that most shoppers choose to get products for free rather than for a discount. Why? Because it’s easier to do “free” math than working out a percentage.
Another survey found that 93 percent of consumers benefited from “buy one, get one free” promotions, while only 79 percent used general discounts. Buy one get one free (also known as BOGO) is perfect for generating impulse sales, transferring inventory, and adding new buyers, but you can also deliver an “extra” bonus with a full-price order. Consider selling a famous high-margin freebie product that’s cheaper but hasn’t sold well, or offers free shipping.
For example, there might be a lotion that hasn’t been flying off the shelves. If you offer it as a “free” gift to buy a more expensive, more popular face wash, you move twice the inventory and get a higher sale.
If you are looking to implement discounts while protecting your margins, conditional programs are a good choice. Instead of making a straight bargain like “$5 off every buy” or “15 percent off all items,” set the criteria or requirements that shoppers need to fulfill in order to redeem the offer: “Purchase 10 items and get 20 percent off.”
Other optional sales include occasional or limited-time offers, such as those you sometimes see in the run-up to Black Friday Cyber Monday.
6. How to Be Profitable
It’s necessary to determine how your discount will still make you successful.
There are two ways that you can make sure this happens:
Monitor Your Margins
It is important to keep the marketing costs low in order to keep your margins healthy. You need to promote your rebate, but not at the literal cost of your profits.
Start by selling your discount to consumers you are already in touch with, such as current clients, email subscribers, and followers on social media. Calculate the expected income from the discount while investing to draw new consumers and compensate for those marketing expenses.
Another way to look at the margins is by segmenting the customers and tailoring the deals. For example, give first-time customers the discount rather than customers who have a history of becoming repeat consumers, or vice versa. In the former example, this increases the chances of luring in new customers without missing out on the sales margins that would have happened anyway.
You can use the point-of-sale program for the latter category to get a history of what consumers have previously purchased, and then build tailor-made discounts based on what that consumer has purchased in the past. Both techniques will heighten conversions considerably.
Know the expense of obtaining the Customer
It ‘s critical that you know how much you’re spending on getting a new customer because that number will change when offering discounted products or products. Be sure that you add your missed margins after the transaction as well as your extra campaign costs.
By turning these new customers into regular customers, you can keep the costs down. Offer upsells and cross-merchandise products in order to get the full return from the first purchase of the new client.
And finally, optimize your website to reduce the abandonment of shopping carts. Make sure there are no logistical speed traps causing confusion at the checkout and send a reminder email a few hours after the customer has left their cart to allow them to go ahead and make their order.
7. Going Ahead With Discount
Discounting can be a perfect way to attract buyers, reward existing clients, and transfer a lot of products in a short period. You just need to have a strategic approach and know your goals in order to increase your sales and revenue.