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How To Discount Products Effectively & Dangers Of Discounts

a few months ago
Black Friday Cyber Monday Ecommerce Store Discounts

Yep, everyone loves a bargain so you may be very tempted to go down the discounting route when pricing your products.

However, whilst offering discounts may seem like a logical step to bring in new business and increase revenue the reality might actually hinder your business growth.

Why discounting is not always a good idea

Matthew Toren, Co-founder of YoungEntrepreneur.com suggests the following 6 reasons to not offer discounts:

  • The primary focus will be on price rather than the value of your products or services.
  • Discounting can lead to price wars with your competitors – and the bigger guys always win.
  • Discounts create the impression that your products or services aren’t worth the full price and set a precedent in your customers’ minds.
  • They can have a negative effect on profits.
  • Discounting can lead to your customers squirreling away as many products as they can at the discounted rate, which can negatively affect future profits.
  • Offering a discount can cause you to have to provide a greater number of products in a shorter period of time, leading to production strains and decreased quality.

Tom Reilly, an author and value-based shopping expert says: “It’s almost embarrassing at times the way people don’t understand all the ways they bring value.”

Your sales people also need to understand the importance of selling on value and be dissuaded from automatically offering a discount; teach them that a premium price is a premium price because the purchaser will benefit in some way – so, be brave and stick with the original price wherever possible.

Discounting gone wrong

We’ve all become familiar with the extreme discounting of Black Friday and Cyber Monday but UK retailers are now under almost constant pressure to discount generously throughout the year. Big discount days certainly attract more customers – and therefore revenue – but it’s important to realise the long-term impact on sales, revenue and customer retention that is the result of over-discounting.

Pini Yakuel, chief executive officer of customer relationship marketing hub Optimove states “Don’t discount when you don’t need to”.  If your customer would happily pay the full price there’s absolutely no reason to discount.

If you offer big discounts during November, for example, surely you are simply encouraging customers to buy early for Christmas?  These customers would probably have paid the original full price during December so, unless a discount is being used to engender loyalty the November discount is unnecessary.

Discounting is not a “one-size-fits-all” strategy; the level of discount and target customer is always crucially important. Pini Yakuel points out that those who purchase something discounted by 5 – 20% are likely to make future purchases but larger discounts of, say 30% tend to bring in “cherry pickers” – customers shopping around for discounts and unlikely to purchase anything that is not heavily discounted.

You should always therefore spend greater time and effort focusing on your existing customers, upselling and offering incentives where appropriate.

It should never be ALL about discounting. Indeed, if you are selling high-end goods this can be a real turn-off to some customers, a sign that your products are not worthy of the amount you were originally charging.  A better alternative for these customers would be to offer rewards such as prior access to the newest collections.

If you do offer a discount, wouldn’t it be better to offer one that has been especially adapted to your customer’s particular taste?  This should help create a real sense of value and personal relationship, a targeted approach based on what they have purchased previously – and an assessment of their likes and dislikes.

Discounting in ecommerce today

In his article “The State of the Ecommerce Fashion Industry”, Aaron Orendorff writes that personalisation is a leading factor in the future of ecommerce.  He presents the following data from Nosto:

  • 43% of purchases are influenced by personalised recommendations or promotions
  • 75% of consumers prefer brands to personalise messaging, offers, and experiences
  • 94% of companies see personalisation as critical to current and future success

A particularly personal touch would be to offer a discount around a customer’s birthday.

For example, you can get a 15% discount code from ASOS for your birthday, via its loyalty programme.  A 25% discount code is offered by Nike Store for your birthday month if you sign up for their newsletter.

Pizza Express offers a ‘free’ bottle of prosecco when you buy 2 main meals within two weeks before or after your birthday – but you must have signed up for their newsletter.  If you sign up for the Body Shop ‘Love Your Body’ loyalty card you can get a free £5 to spend for your birthday and there are plenty of examples.

Making discounting work for you

If you’re considering offering a discount, take time out to ask yourself what the real reason behind it is and whether you are just adopting the easiest option to bring in more revenue temporarily.  Any discounts should be based on sound financial reasons and careful consideration of what they could mean for your business.

In this age of data interpretation and increasingly personalised services, the discounts you offer should be individually tailored to your customers to create long-term relationships.  Personal value should be offered every step of the way.

Moira McCormick is the Researcher & Pricing Specialist at BlackCurve, a leading pricing software company. You can find more of her pricing blog posts at blog.blackcurve.com.

 

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