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What You Need to Know About Discounting in Ecommerce

It’s the age-old question: should you offer discounts on your merchandise? On the one hand, discounts can be great incentives to get customers to make purchases and help generate buzz around events and product launches. On the other, they can cut into your margins and worse, devalue your merchandise in the eyes of your customers.

So, does it work? And if so, what makes it work? In short, yes, but only when done correctly. And the secret to doing it correctly is planning. You probably have some questions, so we’re going to answer them one by one.

Should you discount?

When done too frequently, discounting becomes a part of your brand. I’m positive you could name at least five sites off the top of your head right now that are always running sales. When you see a full-price item, you likely know to wait until the sale price returns. This is the challenge of discounting. Constantly running sales ruins one of the most effective aspects of a sale: urgency.

That’s not all. Psychology has a lot to say about discounted products. Aside from the lost sense of urgency, you’re sacrificing the perception of quality associated with your product, as well as taking away your customer’s ability to brag about getting a good deal.

So, the best way to get all of the good and none of the bad when it comes to discounting is to come up with a strategy that fits your product and industry, and then get creative with the type of discount you’re offering.

How do you come up with a discount strategy?

There are a few types of discounts you can employ:

  • Volume discounts mean that the more someone buys, the more they save.

  • Seasonal discounts are sales that take advantage of a new season.

  • Promotional discounts are sales you run for a limited time and are the ones that should be used the most sparingly and strategically.

Volume discounts and seasonal discounts have the advantage of being expected by customers. They generally won’t lower the perceived quality of your goods, nor will they create a permanently going out of business feeling to your site. Volume discounts encourage customers to purchase more, while seasonal discounts are a great way to jumpstart sales at the beginning of the season. But that doesn’t mean promotional discounts can’t be useful in their own right.

Promotional sales have one big thing going for them: they bring new customers to your site. Now, seasonal sales can do this too, but a big promotional sale can help you cast an even wider net. Repeat customers can be a huge asset, so provided you have a plan in place to maximise your repeat customers, a promotional sale can be a great way to bring people in. In a similar vein, promotional sales are a great way to cross- and upsell your products. Whatever you choose, make sure you have a follow-up plan in place

When should you discount?

While volume sales are pretty much timeless and seasonal sales tend to be, well, seasonal, determining when to run a promotional sale can be a challenge. The biggest consideration for how frequently you run a promotional sale is whether you primarily compete on price or quality. If price wars are common in your industry, frequent, well-planned discounting can be a great strategy. However, if you have a luxury brand or differentiate your products on quality, utilising discount sales less frequently is likely a better plan of attack.

When should you not discount?

The fine line between “good deal” and “low quality” is a tricky one to walk. Think twice about having a discount sale if there’s a good chance it will damage your brand credibility or train your customers to only buy from you during one of your frequent sales. Discounting too frequently can be the start to a slow downward pricing spiral that can, at worse, be the death knell to an ecommerce business. It’s worth thinking very carefully and strategically as you approach discount sales.

What are the alternatives to discounting?

If you’ve decided discounting just isn’t right for your brand, consider getting creative with one of these alternatives.

Free Shipping

Temporarily offering free shipping on certain products (or even site wide) is a valuable strategy that doesn’t impact your brand–or your bottom line–as much. Testing free shipping campaigns is also a good way to figure out how different discount campaigns could play out for your brand.

Referral Campaign

Encouraging your customers to refer a friend with a special link or code is not only actually good for your brand–after all, what’s better than word of mouth?–but it’s also great for bringing new customers into the fold. Again, you’ll need a plan in place to make sure these customers are given every incentive to turn into repeat customers.

Freebies or Special Deals

If you don’t want to offer a discount, offering a free gift or a special offer can be a great alternative to clear out inventory or to give customers the chance to sample new product offerings.

So in conclusion the key to discounting is to know when, how, and what to do and to plan carefully.

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