A wise man once said, ‘I can’t live, with or without you.’ An excellent way to describe an online retailers’ relationship with discount strategies.
Offering too many discounts run the risk of devaluing your products, and not offering any cuts into your profits.
You can’t neglect the benefit of discounting entirely, but you also can’t offer endless discounts because it’ll impair your business eventually. To discover the limits of a successful discount strategy, let’s find out what customers expect from a discount and how it influences their shopping behavior.
How discounts affect purchasing behavior?
Discounts have an incredibly positive effect on consumer behavior at first glance. But when you go deeper, you start seeing how discounting without a solid strategy can hurt profitability in the long-run.
Think of it this way. You recently moved into a new neighborhood and now you’re buying groceries from the local supermarket. Since you moved in, the coconuts are on sale. For two months, you bought them at $4 with a $2 discount. One day, you go to the supermarket and see that the coconuts are now sold at $6. Would you be happy that the discount lasted for that long, or would you be dissatisfied that it ended?
Like every other shopper, you’ll be disappointed. The same rule applies to online shoppers. They get used to the discounted prices so much that they develop tactics to constantly benefit from them.
Instead of coming up with discount tactics (that you can find in a million other posts), let’s uncover which tactics customers use to make the most out of discounts. This way, we’ll learn the point where a discount is beneficial to your business as much as it is to the customer. But more importantly, we’ll learn what’s beyond that point.
Marketers vs. Consumers
What marketers do
Offering discounts to abandoned cart owners.
What consumers do
Intentionally abandoning the cart with the expectation of a discount.
The cart abandonment rate was 69% in 2019. Online stores offer discounts to reduce this rate. However, customers are getting accustomed to this strategy. They rely on stores to offer abandoned cart discounts each time, and they wait for it!
63% of online shoppers state they would reconsider buying the products they abandoned if offered a voucher code. Rather than giving up this useful tactic altogether, determine the customers who formed the habit of leaving the cart. Don’t hesitate to leave them out from this type of offers, since they are overly price-driven consumers that are highly unlikely to build loyalty.
What marketers do
Price anchoring
What consumers do
Price comparison
Discounted prices are usually displayed next to anchor prices. By comparing it to the old, expensive price, stores aim to convince customers that the new price is fair. Often, marketers set the anchor price higher than the actual price to make the deal look better.
But the first thing online retailers must know is how customers use technology to their benefit. Price comparison is as easy as falling off a log, now that comparison shopping engines do the work for you.
It means that customers know how others price the same product. Price anchoring works well if your discount offer is actually good. But don’t rely on inflated anchor prices.
What marketers do
Giving out coupons to all who share e-mail
What consumers do
Giving multiple made-up e-mails
Online stores want shoppers to subscribe to their newsletter, hoping to convert them through successful advertising. However, most of the shoppers give their e-mails to get discounts, and they unsubscribe right after receiving the coupon. But it’s not the worst part. Some customers give fake e-mails, further exploiting the discount offer.
Even if no one exploits your offer, offering discounts in exchange for e-mail addresses doesn’t add much value to your brand’s image. On the contrary, it hurts your business. Reward programs can be beneficial, however, sharing e-mail information is not a sign of loyalty. Your loyalty program must award the people who actually buy from your store.
What marketers do
Constantly offering discounts that target every online shopper
What consumers do
Shop from the store that offers the best deal
Even though online stores offer discounts to convert more customers and eventually build loyalty, most of the consumers are price-sensitive and go for the best price. With a quick search, they can find the best deals and coupons.
Suppose you are visiting an online store for the first time. Every product is on sale. It does seem a little odd, doesn’t it? You leave without buying anything and come to the same store a month later. Not surprisingly, everything is still on sale. What would you think about the original prices? If they already profit on the discounted prices, why are they setting higher original prices?
Discounting is inevitable
All retailers resort to discounting as a fundamental element of their marketing strategy. There is a reason behind it. Discounts can:
- Increase your sales revenue,
- Build/improve customer loyalty,
- Convert new shoppers,
- Dispose of old inventory
Moreover, seasonal discounts are the most common e-commerce practice among all that online retailers embraced a long time ago.
Think of a toy store that doesn’t offer discounts at Christmas time.
While there are at least 10 stores that sell the identical product for under £170, would you be willing to pay an extra £90 to a particular store? If the answer is yes, you must be fiercely loyal to it.
In addition to that, there are particular advantages to various discount strategies. For example, bundled discounts increase average order value, or you can promote a new product with a pre-order discount.
As you can see, there is no escape from discounting. If we can’t escape from it, then let’s learn how to do it correctly.
How to do discounting properly
Avoid continuous discounting
The first thing you must avoid is continuous discounting. You must limit its duration, otherwise, consumers will always look for discounts. Either your sales volume will drop significantly when the discounts are over, or you’ll have to cut the full prices permanently.
Use rewards
You can reward loyal customers with exclusive offers as a way to express your thankfulness and strengthen their loyalty. More to that, exclusivity is a way to cope with the tactics we’ve talked about before that extremely price-driven consumers pursue.
Final Words
Discounting is challenging yet rewarding. It’s challenging because its duration, targeting, and amount matters. To top it all, customers are now experts of discounts, and they utilize the opportunities with tactics they’ve developed collectively.
Rather than focusing on well-known discount strategies, we’ve focused on the traps SMBs fall into. Basically, consumers:
- Intentionally abandon shopping carts to get discounts
- Easily detect pumped-up anchor prices and see the real discount rate
- Give multiple made-up e-mails to get multiple discounts
- Get annoyed by permanent discounts on a store
Love this! Thank you for sharing!
Thank you for the great comment, Michael!