Online shoppers love to sniff out a deal. It’s a triumphant feeling—finding a product you’ve been wanting, or didn’t even know you needed until you saw it on sale at a great price. Earning a discount leaves consumers feeling victorious. Brands can benefit from harnessing this strategy to boost customer satisfaction and drive conversions.
On the other hand, ecommerce margins are already slim at regular prices. Effective discounting in ecommerce must balance the need to make a profit with the potential advantages of giving shoppers a bargain.
Know the “Why” Behind Every Discount
The first tenet of effective discounting is knowing why you’re doing it. Your end goal will affect how you go about lowering prices and how you market said discount to online users.
Here are three leading reasons for discounting in ecommerce:
- Increasing profit
- Reducing inventory
- Attracting new customers
Once you have an end goal can you decide exactly how you’re going to approach discounting.
If your aim is to increase profit, calculate how many extra units you’d have to sell at a discounted price to hit your goal. Make sure the expected influx in unit sales as a result of the discount offsets the markdown, otherwise you’ll end up reducing revenue. Track profits closely to make sure your discount is accomplishing what it set out to do.
Discounts can also help merchants move leftover merchandise. In this case, the goal is to sell as many units as possible so you’re not eating the costs of harboring unsold product. You’ll measure units sold to gauge the result of your efforts here.
Sometimes a discount is all a potential customer needs to buy from your store. In this way, advertising a special low price is a good way to get customers in the door. To quantify the success of your promotions in this arena, pay attention to changes in customer acquisition metrics.
When you clearly define your goal, you’ll have a yardstick against which to measure the success of a given discount.
Motivate Shoppers with Referral Discounts
One potential pitfall of discounts is they can inadvertently devalue the perceived worth of your products. If your store discounts too frequently, people may begin to wait to buy rather than pay the regular price. Put it this way: When you start a furniture business through Shopify, you’ll price each chair, side table, bookshelf, ottoman and etc. based on how much it costs you to make or purchase it. If people begin to think of discounted prices as “the new normal” they’ll be more hesitant to pay your standard prices at the proper margins.
One way to combat this phenomenon is to make people earnreductions. Referral discounts require buyers to complete an action like inviting a friend to join your email list or purchase a product. Only then do they unlock their very own markdown. One A/B test found using the verb “Earn” in your call-to-action for referral discounts increases engagement by 60 percent compared to the verb “Get.”
Asking people to complete a simple action to earn a discount makes them feel more invested in the process; it feels more like a privilege rather than a right available to any website visitor.
Effective discounting in ecommerce requires merchants to have a goal in mind before they set prices or advertise their reduced prices. It’s also important to avoid devaluing your products by consistently setting prices lower than what you need to make a profit.