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5 Top Tips on How to Discount Effectively

Amanda Mulquiney-Birbeck
Amanda Mulquiney-Birbeck Digital Marketing Manager
29 Apr 2019

 

In an ideal world, all products would be bought and sold at full price, all year round. However, in today's modern landscape, retailers often turn to discounts in order to maintain or grow trading volumes.

A considered discounting strategy can keep you ahead of the competition and bolster profits through increased sales, but behind the scenes, you need to make sure that price slashes aren't hindering your overall revenue.

The Discount Epidemic

To win basket conversions, it's tempting to continuously offer a slew of incentives and discounts including free shipping, a percentage off and buy-one-get-one-free deals. While this is excellent news for the customer, for retailers, heavy discounting comes at a price. Yes, sales and revenue may receive an instant boost but if consumers aren't spending more overall throughout the rest of the year, discounting will harm the total margin and profitability.

So, when should you discount? Is there an industry ‘magic bullet’ to get discounting right? Are there tactics to avoid?

Getting the balance right can be exceptionally tricky. So, we've identified 5 top tips for the best chance of success.

1. Avoid the Discounting Trap

Many discounting strategies are valid when used sparingly and with the customer demographic in mind. However, under the constant pressure to compete for the lowest price - it's easy to fall into the trap of continuous all-year-round discounting cycles. While it's true that discounting is one way to get cash ringing at the tills, research by Klarna revealed that 53 % of retailers find that always-on sales are hurting their bottom line.

Discounting can be a significant source of stress in many parts of an online business – from the top down – not only on profits but on the operational demands needed to deliver on increased sales activity.

The truth is that many retailers will discount to shift unwanted or out-of-season stock. Our first tip is two-fold, avoid ‘always-on’ sales discounts, and make steps to improve your forecasting to make more accurate purchasing decisions.

2. Focus on the Customer Journey

The pressure is on for retailers to continually win sales and develop a loyal customer base. However, this is more difficult than ever before – with thousands of online shops to choose from customer loyalty can start to feel like a myth.

To combat this, online retailers should focus on perfecting the customer journey – from start to finish. Research shows that retailers can win over customers with inspirational browsing experiences, a seamless checkout and multiple purchase options.

The truth is anyone can sell products at reduced prices. To differentiate yourself work on making a better brand experience online that conveys your USP. Avoid slow and clunky, opt instead for sleek and stress-free shopping experiences. These are the factors that will keep customers coming back again and again. Afterall it’s marginal gains across the entire customer journey that will have a true impact on your bottom-line.

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3. Product Placement

Discounts should be used sparingly alongside your overall marketing strategy. Alternative tactics to trial can be something as simple as reshuffling your products and moving them higher up the page. A recent study by FACT-Finder showed that ‘moving an item from the 8th row of a results list to the 3rd had the same effect as discounting that same item by 21%.’ Which would you prefer, moving an item a few rows up, or taking a hit on your margins?

4. Understand the True Costs

Before carrying out a promotional campaign, it's worth understanding the amount of sales activity needed to make the discounts profitable so we recommend that you review all areas of your business and identify the likely impact on costs.

In order to know when you can afford to discount, and by how much, you need to understand in real-time, all the costs involved in a sale to determine the difference between what you're charging your customers and what it costs to fulfil an order. Its worth reviewing your Ecommerce activity on a regular basis to ensure that you understand the true financial performance of product lines and product types.

This analysis needs to include all your third party, delivery, operational and marketing costs which all take a slice of your order margins.  Once you understand the actual costs involved you'll have the foundations in place for strategic discounting that benefits both you and the customer.

To understand the true costs of your Ecommerce operation download our infographic on the “Hidden Costs Affecting Your Online Profit”.  

5. Leverage your Data for Targeted Discounting

Constant sales can make brands look cheap. There’s a fine line between coming across as a “discount brand”, and the point where the customer starts to question the quality of products. It makes sense to offer discounts at the right time and to the right target group. If you opt for targeted discounts – not only could you boost sales but improve your brand perception.

Brian Green, Senior Director at Magento, explains that you can quickly understand the level of interest in an item by paying close attention to internet chatter.  "In today's increasingly competitive retail landscape, it is essential that retailers leverage all the information available to understand their customers and predict future buying behaviour. This can play a crucial role in identifying which products should be discounted to maximise profit. For example, analysing outside influencing factors to gain insights into a products market appeal by monitoring product reviews, blog posts and third-party expert review sites to determine sentiment towards the product. Machine learning can also identify products that have seen consistently low ratings so that suppliers can lower their prices on the pieces that are least appealing to their customers."

While targeted discounting by itself has the potential to boost discounting profit, there are ways to improve on it; notably, looking outside of the traditional discounting patterns: those seasonal events such as Black Friday where customers are expecting you to discount. If retailers issue targeted campaigns in the right manner, discounting can be an effective strategy throughout the year.

However, it’s also worthwhile making a note of what competitors are doing, because if their prices are notably cheaper, there’s a chance a portion of your clientele will jump the fence (at least as long as your competitor’s discount is running).

In Summary

Discounting is part and parcel of the current state of retail. To truly take advantage of the opportunities it presents, a strategic campaign should be cultivated, rather than perpetually discounting year-round. Careful planning and true visibility across the business are key ingredients for success.

 

 

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