There is a growing trend of discounting items in ecommerce. Many stores offer discounts on an ongoing basis to sell out their current inventory or drive traffic to a store, and are successful in doing so, but continuing to discount your items can have negative consequences for your brand image, customer base, and ultimately your profit margins. Customers become accustomed to expecting discounts, and if you are always giving away discounts, your customers will not see the value of the regular price of your item.
You can provide customers with a reason to purchase your items at or above retail price while maintaining their perceived value without compromising your profitability. Through strategic pricing programs, you may give your customers an incentive to buy now and pay later, maintain their loyalty, and increase the value of each purchase. Thus, you may capture additional customer loyalty, and the average order value (AOV) will remain higher than without offering strategic pricing programs.
This guide will give you some of the most effective ways to provide value to your customers and reward them for shopping with you, while still allowing you to maintain a strong brand image and bottom line in your business.
Why Constant Sales Aren’t Sustainable?
Before going through the alternatives to an Always-on Discount Strategy, let’s understand briefly what the possible pitfalls are with regard to the “Always-On” discount strategy.
1. Brand Devaluation: If you have products that continually have a discount running, customers will feel that the original price is marked up and therefore cheapen your brand association. The inability to sell at full price will be more prevalent as a result.
2. Customer Training: Customers become conditioned to wait for discounts to buy products. This leads to the customers delaying their purchases and ultimately affects full price sales volume negatively.
3. Erosion of Profit Margins: Discounts represent a direct cost to the retailer because they lower their revenue on each sale. Volume may increase as a result, but this does not always equate to increased profitability unless adequately balanced and controlled.
4. No Urgency: If a sale is always available, there is no feeling of fear of missing out on the product (or FOMO) that would usually propel an impulse buyer to make a purchase.
The answer is not to eliminate discounts, but rather to implement strategies to utilize discounts in conjunction with a combination of sustainable pricing strategies that provide value to the customers without reducing the overall selling price to increase the perceived value based on discounting alone.
7 Alternatives Strategic to Continual Discounts
There are several compelling ways to provide customers with special pricing and perceived value without the need to offer large discounts continually. Some of these include:
1. Bundles or Kits Provide More Value Than Just Discounts
This means that rather than reducing the price of a single item, bundle multiple related items and offer customers discounts when they are purchased together.
Examples of Bundles or Kits: Bundles may include all the pieces one would need to build a camera workstation, i.e., cameras, lenses, cases, etc., or skincare routines. You have essentially created bundles that are less expensive than buying everything separately, while at the same time creating a profitable opportunity for your business.
Benefits:
- Your average order value will increase since customers will be buying more than one product at a time.
- Customers will buy slow-moving inventory because these products are put together with products that are in demand.
- Customers will have a better overall experience because the bundles offer a complete solution.
- The overall perceived value of each of the products that are bundled will remain intact.
Example: When you purchase our Premium Coffee Maker, you will receive 20% off when buying a Starter Pack of Gourmet Beans and a Travel Mug.
2. Loyalty Programs: Rewards for Your Top Customers
Loyalty programs are an efficient method to increase customer retention and repeat purchases without having to routinely run promotions on your entire website.
Generally speaking, customers earn points for purchases they make. They’re then able to redeem those points for discounts, exclusive items or unique experiences (this could be defined as “perk”). In addition, loyalty program tiers enable you to provide your customers with increasing levels of benefits (i.e., you could offer early access to new merchandise and/or complimentary expedited shipping).
The Main Benefits of Loyalty Programs
- The average lifetime value (CLTV) of a customer increases.
- It creates feelings of exclusivity and value for your customers.
- Valuable customer data collected through loyalty programs provides better information for you to create targeted marketing campaigns.
- It transfers the focus from a ‘quick sale’ to long-lasting relationships.
Example: “Join our VIP loyalty program: Earn 1 point for every dollar you spend, redeem 100 points for $10 off your next order, and you will also receive early access to new product collections!”
3. Custom Pricing for High-Value or Bulk Orders
When you have a higher than average order value and work with business-to-business customers, one of the most effective alternatives to blanket discounts is offering personalized pricing or request for quote for bulk order, based on the specific volume or complexity of the customer’s request.
With custom pricing, you remove the emphasis from a fixed discounted price to an agreed-upon value based on the volume or complexity of the customer’s request. A customer purchasing large quantities or multiple high-value items will receive a personalized offer that recognizes both the volume level and the size of their commitment. While maintaining the full-price perception for all regular customers, you provide an incentive for these high-value transactions through your specialized offers.
With a customized offer, you will not create a perception of an immediate sale for all customers; rather, you will create a high-touch, tailored experience for your customer and position the price concession directly in relation to the scale and profitability of the order.
The benefits of this approach are as follows:
- Custom offers protect your brand. Because they are not publicly advertised, they do not devalue your public list price.
- The AOV will increase. By offering customers an incentive to increase their order size, the likelihood of them qualifying for a better customized deal will increase.
- Direct communication creates more engagement. With a more direct customer communication channel, your B2B and high-value customer relationships will strengthen.
Example: For orders over 50 units, instead of applying a fixed coupon, we invite the customer to submit a list of their required items to receive a bespoke, personalized offer tailored to their volume.
4. A reward system where the amount you spend determines the amount of money you save
With this method, customers are encouraged to increase their shopping cart’s total to qualify for increased discounts off the final price of the item they purchased. This can be done using descending scales of discounts based on the customer’s purchasing behavior (spending), such as:
- “Spend $50, receive 10% off.”
- “Spend $100, receive 15% off.”
- “Spend $150, receive 20% off.”
The advantages of this system are:
- The Average Order Value (AOV) will be greatly increased.
- A clear incentive for customers to increase their shopping cart.
- This method is less “hardcore” than providing a fixed percentage discount on everyone’s orders that are received during a specific time period.
Example: “Unlock Savings! Spend $75 and get a free tote bag, or spend $120 and get a free tote bag AND free express shipping!”
5. Create an exclusive feeling of being privileged
This is accomplished by providing a group of customers the ability to access special pricing not available to others.
How this is done is through the use of discounts for specific groups of customers:
- New Subscribers: A welcome discount for signing up for your email list.
- First-Time Buyers: A small discount on their initial purchase.
- Social Media Followers: Exclusive codes shared only on your social channels.
- Referral Programs: Discounts for both the referrer and the new customer.
- Student/Military Discounts: Value-based discounts for specific communities.
The advantages of providing gated/exclusive offers are:
- You generate specific actions from your customer base (i.e. emails, referrals).
- You provide a unique and special feeling that creates a sense of privilege to the customer because it’s not something they expect.
- You have an effective way to target specific groups of customers with your discounts.
Example: “Welcome to our community! Enjoy 15% off your first order when you subscribe to our newsletter.”
6. Flash Sales with Time Constraints: Instilling Urgency
If you give discounts, make the offer a very limited time frame, highly time sensitive; this will instill a sense of urgency in customers and generate the fear of losing out (FOMO).
What it’s all about: Announcing a limited-time special sale (i.e., “24-Hour Sale,” “Weekend Flash Deal”) when end-users see a sale that is time-limited it gives the buyer more incentive to buy quickly creating a feeling that it is more valuable.
Benefits:
- Encourages quick purchasing by increasing immediate sales volume.
- Increases excitement about future flash sales.
- Will not diminish your product/service value long term if limited in frequency.
Warning: Don’t overdo it; if you have “flash sales” every week it diminishes their impact.
7. Value-Added Reason to Purchase: Free Gifts or Services
Instead of reducing your product pricing to entice consumers to buy, build value into the sale.
What it’s all about: When you offer your customers something extra for purchasing e.g., free gift with purchase, free shipping on large orders, free installation or free services.
Benefits:
- Maintain the full sale price of your product.
- Creates a higher perceived value and increases the customer’s satisfaction.
- Sets you apart from your competitors.
- Very useful for promoting smaller non-interesting items.
Example: “Receive a free luxury sample set with every order over $100!” or “Get free express shipping on all orders this week.”
Key Considerations for Implementing Your Strategy
1. Be Aware of Your Margins: It is important to know the COGS and desired margin for your business to create special pricing strategies.
2. Customer Segmentation: Not every customer is the same, so use customer data to segment your audience and create the best possible offers for each group.
3. Testing Offers: Testing different offers and methods will help determine which ones will be most effective in reaching the target audience and achieving your desired business results.
4. The Importance of Communication: Always clearly communicate the value of the offered price along with the time limitations or other conditions associated with it. Transparency in your business practices helps create a foundation for trust with your customers.
5. Integrating with E-commerce Platforms: It is necessary to ensure that your e-commerce platform (Shopify, WooCommerce, Magento, etc.) has the capability to support the various pricing and promotional rules.
Conclusion
Rather than focusing on discounting prices repeatedly, the future of e-commerce pricing focuses on creating value. This can be done by creating bundles, loyalty programs, tiered rewards, exclusive offers, and value-added promotions that increase online profitability by building stronger customer relationships and creating greater perceived value for your brand than what would normally be derived from a discounting strategy.
The focus is on creating value through smart strategic thinking in order to create the best experience for your customers and the most compelling offers to repeat purchases from your brand.