Like all retailers, direct-to-consumer (B2C) brands have one main goal: to sell as much as possible. However, these companies face a challenge that not all retailers encounter. They need to attract, convert, and retain customers in an entirely online environment without the support and exposure that retail partners provide. Many brands that get their start selling directly to consumers engage in brand partnerships with brick-and-mortar retailers to expand their brand presence in the real world and create a stronger impact among their target audience, but there are other ways to tempt customers and drive sales. Two of the most popular and time-tested methods are discounts and promotions. While they may sound similar, they're two very different strategies.
Here is a closer look at the difference between a discount and a promotion, and when B2C brands should use each one.
What Is Discounting?
Discounting is a specific kind of promotion and is the practice of reducing the price of a product below the standard retail value to trigger an increase in sales.
The psychology behind the discount strategy is pretty straightforward. People like to feel like they got a bargain; they enjoy the social perception and, of course, the actual savings that come with making a smart purchase. Plus, discounted offers are tied to scarcity, whether it’s a limited-time offer or there are only a limited number of products available at the lower price. This creates a sense of urgency for potential customers that can only be satisfied by purchasing the product now.
Discounts are an irresistible sales tactic, and there are various ways B2C brands can leverage them. Here are the most common types of discounts:
Reducing price: The most standard form of discount is to reduce the cost of the product. For example, either by a percentage like 20% off, or a cash amount like $10 off.
Multiple purchases: Many B2Cs offer discounts on purchases of more than one product. This could be in the form of “buy one, get one free,” or 20% off the purchase of two or more products, for example.
Combination deals: Discounts can include combo deals, which means the purchase of a prearranged combination of products will be cheaper than the purchase of each item individually. For example, a Bath & Body Works customer could buy just a scented lotion, or they could get a bundled deal on a lotion and a shower gel for a lower price than if they purchased each item separately.
Discount on future purchases: Offering a discount on a future purchase is a tactic designed to ensure the customer returns to make a repeat purchase. It may be less effective than a standard discount offer since it deters customers who are only interested in a one-time purchase.
Free shipping: According to UPS, 43% of B2C customers consider shipping costs when researching products online. Free shipping is a simple way to offer a discount. However, B2C brands also need to remember that, for many customers today, free shipping is expected and may not necessarily be perceived as a discount.
What Are Promotions?
Promotions are a range of tactics designed to pique awareness and interest in a brand or product, create a buzz, and drive sales and revenue. For promotions to be successful, they must add value for customers. When done correctly, promotions can even help boost the long-term perception of a brand.
While discounts refer only to the price and actual sale of a product, promotions are far more varied and include a wide range of marketing and sales tactics that can start before someone even considers becoming a customer. Here are just a few examples of the types of promotions B2C brands can employ to increase sales and enhance brand value:
Coupon codes: Offering coupon codes for discounts and exclusive deals is a popular tactic for e-commerce brands. Rather than just applying a discount on products for every customer, no matter what, coupon codes can be sent to specific customers, like those signed up to receive email alerts, for instance. The online transaction helps the company track the customer journey from the retrieval of the coupon code through the product purchase. It is also a great way to collect customer email addresses and other information for future campaigns.
Another advantage of online coupons is that they are instant. The customer can access their coupon code and make the discounted purchase immediately. In this case study by Sumo, a flavoured water brand was able to generate over $300,000 in revenue from one popup with a 15% discount coupon offer.
Loyalty rewards: Loyalty programs are a great way for B2C brands to improve their relationship with customers and make sure they keep coming back. Loyalty rewards can include offers such as loyalty points, reward coupons, or a free product after a certain number of purchases.
Referrals: Referral marketing programs are a popular B2C tactic in which customers benefit from referring a friend to the company. An example of a referral tactic is to offer a cash bonus, such as $5, for every referral earned. Referral programs help retain existing customers while also promoting the acquisition of new customers.
Competitions: Interactive promotions, such as competitions, surveys, and quizzes, are also a fun way to attract customers and boost sales. B2C companies can offer discounts, special offers, or prizes to customers in return for user-generated content, social shares, and other customer engagement activities.
What Is the Difference Between Discounts and Promotions?
While a discount is a kind of promotion, other types of promotions can be more sophisticated sales and marketing tactics that B2C brands can implement at various points along the customer’s journey through the marketing flywheel.
Discounting is a relatively basic tactic — by slashing the price, the product becomes more attractive to customers. However, there are downsides, too. Reducing the price risks devaluing the product perception since people tend to associate higher prices with higher quality. Plus, the expected increase in sales volume is meant to offset the loss of revenue incurred by the discounted price. However, if sales don’t increase enough, the discount strategy can seriously eat into profits.
When to Use Discounts and Promotions
B2C retailers can use both discounts and promotions to boost brand awareness and sales. However, there are times when one method may be more suitable than the other. For instance, when there is excess inventory that needs to be moved quickly, offering a simple cash discount can work well. In addition, discounts can create a buzz when introducing a new product to the market and get it out to as many people as possible in the early stages.
Promotions tend to be a longer-term tactic that won’t necessarily deliver instant ROI but can have a huge payoff over time. Brands can use promotions to drive customer awareness, engagement, and loyalty, encourage repeat purchases, collect customer data, and build customer lists for future campaigns.
For B2C companies, offering discounts can be risky since it trains customers to expect lower prices all the time. The challenge for e-commerce retailers is to find other ways to connect and communicate with their target audience, like with promotions. Various types of promotions can do far more to engage customers and entice them to buy than a basic discount. With a range of discounts and promotions, any company can grow its brand and build customer relationships that last.
I have also summarised all the existing research into this handy flowchart:
Do people prefer discounts or bonuses?
In general, people prefer bonuses. In one study, everyone was shown the base model of a car listed at $10,320. The catch was the some of the people saw a discounted vehicle, while others saw the extra features presented as free extras. People who saw discounts rated the car’s quality a 4.95 on a scale of 1 to 7. But people who saw extra features rated the car’s quality a 5.27. People also valued the car more when extra features were offered: they rated the value a 5.07 on average, compared to a rating of 5.18 from people who saw a discount instead. In short, a bonus made the car slightly more appealing, and made people slightly more likely to buy it.
Another study tracked a promotion for 9-ounce bottles of hand lotion normally priced at $13.50. During the 16-week study, the promotion alternated each week between a 35% off discount and a 50% bonus. The bonus outperformed the discount by a wide margin, even though a 35% off discount is almost economically equivalent to a 50% bonus:
In the discount version, the price was 35% off $13.50, or $8.76. For a 9-ounce bottle, this works out to $0.96 per ounce.
In the promotion version, the price stayed the same, but the bottle sized increased to 13.5 ounces. At a $13.50 price, this works out to $1.00 per ounce.
The bonus promotion also sold more: an average of .56 units per day, compared to an average of .31 units per day for the discount promotion, and it outsold the discount promotion six of the eight two-week periods of comparison. In fact, the store sold 73% more product when they promoted it with a bonus.
If bonus packs work so well, then why are products put on sale?
Because discounts work, too.
Research on consumer behaviour backs this up. A study by William D. Diamond of the University of Massachusetts found that shoppers for laundry detergent liked discounts better. He showed 40 people a 64-ounce bottle normally priced at $4.00. Some saw a discount, while others saw the extra product at the same price. When discounts got bigger, people preferred discounts over bonuses. Diamond also learned that people only like bonuses when they see promotions for extra product, not extra value. For example, “get 16 ounces of extra detergent” performs far better than the economically equivalent “get a dollar’s worth of extra detergent.”
Another study found that discounts work better than bonuses for museum membership renewals. Some members were offered a 15% discount, while others were offered two extra months. Even though these options are nearly economically equivalent—two free months of the year is worth the same as a 16.7% discount—people preferred discounts to promotions 5.586 to 4.469 on a 7-point scale. (Curiously, this wasn’t true for new members; discounts were less effective at getting new people to sign up.)
I have also written about 4 reasons bonuses work better than discounts and 6 Exceptions: When consumers prefer discounts to bonuses. Go check them out!
Discounts vs. bonuses: some takeaways
Let’s summarise what we’ve covered so far. We’ve seen that, as a general rule, consumers prefer bonuses to discounts because they frame losses and gains differently, they’re bad at calculating percentages, they neglect the base value when comparing discounts and bonuses, and they compare percentages differently depending on how close together the nominal percentages are. We’ve also explored six important exceptions to this rule—instances when customers are more likely to prefer discounts to bonuses: when they purchase vice products, when they feel socially excluded, when they purchase stock-up products, when the promotion level is low, when the price is low, and when the brand is unfamiliar.
Our preferences for different kinds of promotions reveals uncomfortable truths about human nature. We avoid risk. We don’t like taking risks, even if the outcome benefits us. We look for easy ways to feel less guilty. If we do something we regret, we try to justify it. We desire social connections with others, and we spend money on experiences in ways that reflect the presence or absence of bonds with our friends and family.
One thing is clear: knowingly or not, the way in which you respond to various kinds of promotions is largely outside of your conscious awareness.