While discounting is an intrinsic aspiration of all the customers, it is arguably the most important pricing strategy for all businesses, especially retailers. It, however, requires a great amount of prudence in execution.
You can consider it as a double-edged sword.
It can allure customers and drive sales. And with wrong implementations, it may lead to a reduced bottom line as well.
I know that after reading the previous paragraph, all ambitious entrepreneurs would be eager to know the most effective discount strategies and tactics they could use. If you are one of those people, then read on.
Setting conditions for discounts
Instead of announcing blanket discount offers like 15% off or $15 off on all purchases, a conditional discounting strategy keeps your margins protected. It enhances your conversion rate at the same time. You can always set conditions or fix certain limits for customers to avail discount.
The following examples will explain this strategy:
• Get an X % discount if you buy Y or number of items: This is also called volume discount aiming to entice customers to purchase products in large quantities. Large discounts for large volumes attract first-time customers. In highly competitive markets, companies lock in customers through this strategy.
• Buy one get one free or buy one and get another on discount: This strategy is commonly used by many retailers. They make a good profit on account of a large turnover.
• Spend a certain amount and save X %. This strategy motivates customers to purchase an item in bulk for future requirements or buy multiple items in order to avail the announced saving.
Rewarding loyalty
Loyal customers deserve special favor.
For businesses, it costs 10 times higher to sell something to a new customer than to an existing one. These discounts prove to be an excellent retention tool.
Offering rewarding discounts to regular and repeat customers make them feel privileged. The point scoring mechanism for members of the loyalty club is an excellent tool that motivates customers to spend more on shopping for scoring higher points. Each point carries a dollar amount which you can redeem any time.
The loyal customers often get reward through special arrangements as well. For instance, a sports clothing store offers discounted membership to a local gym to its customers who spend a certain amount. Reciprocally, the gym also offers discount vouchers to its loyal customers for purchasing from that sports clothing shop.
Discounting bundled products
This strategy bundles a group of products and sells this set at a discounted price. The customers perceive a discount on the package as a better deal than a discount on individual items.
The fast-food chains, like McDonald’s and KFC, understand this bundling discount concept quite well. With that, they offer various deals which combine many items for a reduced cumulative price than buying each item individually.
Similarly, a cable service provider may sell you internet, cable TV, and home phone service separately or in a bundle. In the latter case, the price you will pay will be a much-discounted one against individual services.
The bundles work well for profit margins, which are high enough to cover the cost of offering. The higher sales thus increase profitability.
Discounting select consumer groups
The sellers can make the best use of special discounts for selected groups of consumers. For example, students, senior citizens, and women generally shop for discounts. They hunt promotional deals and search keenly for sale.
According to a Payment sense report, 71% of women say they would more likely purchase an item that is on sale. A research study by Stock and Bailey reveals that both male and female students hunt items on sale and search for promotional deals.
The strategy to offer discounts for exclusive consumer groups allows sellers to leverage these discounts without straining their profitability. There are plenty of businesses that offer discounts to select consumer groups.
FedEx, for instance, gives 30% discounts on documents and 20% on shipping to students. Bealls, the retail clothing store, offers a discount of 50% to senior citizens (50+) every Tuesday. These are just two examples.
In fact, the strategy to discount consumers on segmentation basis is very common. Most customers highly value those companies that offer discounts for students, military persons, and seniors.
Prepayment discounts
The businesses offer a good discount on advance payments of services and physical products. There are software companies that either bill monthly or annually, offering discounts in case customers choose the annual option. The advance payments can be used to acquire additional inventory or to improve cash flows.
The early-bird discount is also a special kind of prepayment discounting strategy. Many online stores use it for to-be-launched products. The customers are motivated to book their orders prior to launch and are rewarded with substantial discounts.
Hotels, training academies, and publishers are some examples that use this strategy successfully.
Incentive discounts
These are rewards for certain favorable action from your customers that can open doors for greater business opportunities. For instance, you may announce an automatic 10% discounts to customers when they share your products on Twitter. Another of such incentives may be a 20% discount on referring three friends.
These action-oriented discounts may initially seem costlier but they promote and benefit the company in many ways. In fact, prudent use of this strategy brings multiple marketing benefits for the company.
Incentives for abandoned carts
Every online business confronts these shoppers who add items to their shopping cart and then leave the site without making a purchase. The reasons for abandonment often include higher shipping cost, lengthy/complicated checkout process, and poor navigation of the site.
Being a huge issue for E-commerce, the businesses are paying serious attention to this. Enters the abandoned cart email strategy, which includes sending a suitable personalized message soon after abandonment. The message is sweetened by incentivized purchasing deal, offering some discount.
Most companies report increased conversion by using the discount for abandoned carts. A word of caution, however, is to make this discount a one-time offer only. This is important in preventing the customer from getting used to abandoning the card for getting a discount.
Event-based and seasonal discounts
Events and discounts now seem inseparable. Be it Black Friday, Christmas, Valentine’s Day or Mother’s Day, businesses offer substantial discounts.
Most people tend to be in a shopping mindset these days. Retailers can boost their sales volumes backed by intelligent and well-thought-out discounting strategies.
Many companies relate discounting schemes to company-specific events. A leading TV shopping channel in Germany cleverly discounts their not-selling-well products on self-designed events, like the anniversary of the internet site or an annual-themed Exercise week.
Seasonal discounts often target out-of-season inventory to help reduce the inventory carrying costs. The seasonal discounts usually exclude high-end brands and confine to those products, which are sought by bargain hunters.
See Also: How to Survive Black Friday
Coupon codes
The savvy marketers are using the ubiquitous coupon codes very commonly to track their campaign’s ROI. The retail shoppers delightedly search sites like RetailMeNot or SlickDeals to find the best shopping deals.
The coupon codes are alphanumeric strings. They are offered by online shopping stores as a vital part of their overarching marketing strategy. The coupon, according to a research conducted by Center of Neuroeconomic studies, Claremont graduate university, is physically shown to be more enjoyable than getting a gift.
These sophisticated marketing tools drive sales and help build the brand image. The coupon code strategy for a discount is producing excellent results in revenue generation for retailers around the globe.
See Also: Everything You Need To Know About Coupon Codes
Wrap up
The correct discounting strategy definitely boosts the sales and enhances your income streams. However, there are three prerequisites that are critical for getting a guaranteed positive outcome of discounting. These are:
- What strategy to apply?
- When to execute?
- To whom it should be offered?
While a correct and well-timed strategy offered to relevant customers may turn around your sales volumes, a wrong strategy may likely impact your business negatively. It’s all about matching your goals with an appropriate strategy.