How To Create Discounts That Don't Eat Into Your Profits

May 31, 2016

With ecommerce competition just a click away for online shoppers, retailers need to consider a variety of strategies to convert browsers into buyers.  Offering discounts is a proven approach to increase conversions and revenue. But if ecommerce owners aren’t careful about their discount strategies, they could end up winning in sales but losing out on profit.  We’ve researched the best tips in the industry as a reference for future discount campaigns that will help you grow sales and customer loyalty without sacrificing margins.  

Why Are Discounts Important?

57% of shoppers are motivated to complete a first time purchase if they are able to redeem a coupon. VoucherCloud  Discounts generated 17.7% of total business for small and medium size organizations. BIA/Kelsey Research  56% of shoppers in the U.S. say they are influenced by deals, discounts or sales. Retail Me Not

Benefits of Offering Discounts:

  • Support new customer acquisition
  • Dissuade shoppers from searching for other offers or pricing
  • Offload excess inventory
  • Increase customer loyalty
  • Learn more about customer behavior with coupon data

5 Smart Deals and Discounts

1. Reward New Customers

Build customer loyalty from the start by automatically applying a discount toward a new customer’s first purchase. A proven statistic we’ve mentioned in a previous post is that it costs considerably less to retain customers than it is to find new buyers. If you do the math, it’s worth offering a discount on a first time purchase if it leads to more sales down the road.

2. Post-Purchase Discounts

By focusing on shoppers who have already purchased from your store, you can target your discount strategy to buyers you know are interested in what you offer. Consider sending an email after a purchase offering a discount on the next order.  

Post-Purchase Discounts

3. Targeted Discount Offers

Don’t make the mistake of offering discounts to customers who would probably buy from your online store without a deal. By analyzing customer behavior and past purchase data you can focus discount strategies on customers who have a history of buying with coupons or special offers.

4. Lower Price for Built Up Inventory

Sitting on inventory costs money. Create coupon codes or special offers targeting items that are not selling well. The lower prices will be offset by reducing the cost of holding onto surplus inventory.

5. Offer Deals to Boost Your Marketing Arsenal

A growing number of stores are offering one-time discounts to online shoppers who submit their email address. You can also grow your social following and keep current fans engaged on social media by offering exclusive coupons via social channels.  

Offer Deals to Boost Marketing

Discount Do’s and Don’ts

Do: Use coupon codes to track and measure your advertising ROI. You can use a different code for each channel to see how many sales your campaigns generated.  

Use Coupon Codes to Track and Measure Success

Do: Create a sense of urgency. Make sure your offers are accompanied with a time limit such as ‘Today Only’ or ‘Valid While Supplies Last’.  Do: Try volume discounts to increase Average Order Values.  Do: Make the savings worth your customer's time.  Don’t: Don’t send a coupon until you calculate Customer Lifetime Value to determine if the price cut will pay off in the long run.  Don’t: Don’t offer a discount unless you understand the unit economics of the deal.  Don’t: Don’t overdo discounts and sales. This could hurt your brand’s integrity and cause regular shoppers to wonder if you are artificially inflating the regular price of your items in order to support ongoing discounts.  

Examine Your Discount Data

There are dozens of ways to position and promote your discounts so it’s important to discover which are the most effective strategies in driving sales and protecting margins. By analyzing data as it relates to the discounts you offer you can see which offers are most effective and profitable.  Finally, remember that there are times when it’s better not to offer discounts but instead devote your time to providing the highest quality products, services and unique brand experience.  

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