Discounting is one of the key tools in a retailer’s toolshed. Need to boost sales? Cut prices. Need to offload some old stock? Sell it at a reduced price. Want to tempt new customers in? Offer them a welcome discount.
But what if you’ve become addicted to discounting? And more importantly, what if your customers are wise to your discounting tactics? Then you can get stuck in a situation where your customers are just waiting for a sale, and never buy anything full price.
For example, I bought some clothes from a retailer a year ago (I’m ashamed to say, not an Ometria customer). Now I get an email every day, and most days there is a reference in the subject line to a discount. Here are some examples from the past two weeks:
There is something of The Boy Who Cried Wolf about the insistence that these discounts end soon. I know that in a couple of days at most, there’ll be some other discount. The discount incentive has lost all power for me.
On the other hand, there are certain brands who use discounts sparingly, and if they sent me a code for 20% off, I’d take it like a shot.
Marketing Week recently wrote about brands that were trying to get themselves off the constant discount cycle. In it, Superdry and Gap were both mentioned as brands who saw some of their brand value (and margin) erased by self-inflicted discounting problems, and were taking steps to get away from this vicious cycle.
At Ometria, we don’t think that retailers should stop discounting altogether. Instead we think that retailers need to be more intelligent about discounting and use it more strategically, rather than doing frequent batch-and-blast emails with blanket discounts to try and get a short term boost in revenue. But how can you wean yourself off this discount cycle, or avoid the trap altogether?
One option is to straight away switch your discounting approach from blanket sales to all your customers, to a reward for your most loyal shoppers. If you have a dedicated loyalty program this can be the mechanism by which you deliver these rewards. But even if you do not have a program, if you can identify your most valuable and loyal customers you can still target them with special discount codes.
This has the benefit of providing incentives for customers to become long-term customers and to buy more frequently. This also gives you the benefits that come with discounts but in a more limited and targeted way, and are more likely to lead to further repeat purchases from your loyal customers.
If you still have a need to get rid of stock, or to boost sales, then if you limit your sales period to a specific time, then you can still get rid of stock. This is nothing new, with Black Friday, Christmas, January, Summer all being known times for sales. But if you pick both a very specific time, and one that is thematically linked to your brand, you may be able to offer smaller discounts as well as get more attention when you do choose to discount.
Take Elvie, a brand focused on motherhood. For Mothers’ Day in the UK, the brand offered a discount over this period, knowing that it’s not a common occasion for discounts, but that it’s one that fits very closely with its brand purpose. It’s not the biggest discount you’ll ever see, but a rare 10-25% off is very welcome if you’ve got your eye on one of their products.
Another option is to only offer discounts to shoppers who refer their friends and family. The benefits of referrals are well known. People are more likely to buy if they’ve had a personal recommendation. Plus for you as a retailer, you can get an extra customer for a relatively low acquisition cost, while increasing your connection with the existing customer.
We recently created a case study with furniture retailer Cox & Cox. The short version is that email engagement had dropped off, and rather than simply offering a discount, Cox & Cox wanted to do something differently.
What they did was take customers’ lifecycle stages and preferences for certain categories and send dedicated and personalized recommendations as part of a broadcast campaign. The results spoke for themselves, with conversion rate increasing as well as average order value. For the results breakdown and the full story, read the case study here.
Free shipping is in essence a discount, disguised as adding value. But with shipping costs going up and supply chain issues, free shipping thresholds are becoming less desirable for retailers to offer. So what can retailers offer to provide a better experience?
Well, if you’re shipping things anyway, why not include a free gift? The marginal cost of shipping something extra is small, and if the alternative is throwing it away or storing it, you might find it’s worth it to send it for free. The amount it delights your customers may pay for itself!
Try to think about ways you can add value to the transaction for the customer so that they get a little bit extra for their money. Charity donations are another way to add a degree of value.
If you are a multichannel retailer with an online store and physical stores, then an option is to only provide discounts in one of those places. Perhaps you want to drive more footfall, or perhaps it makes more sense for discounts to be online-only.
Alternatively, if you can offer very specific category or product based discounts and target those to customers with affinity for those ranges, you can avoid site-wide discounts, and instead bring customers to your site.
The balance between the short term gains of discounting and the long term downsides to constant discounting is a hard one to strike. To grow in the long-term retailers have to build loyalty with their customers. We find looking at customer data, that there is a key purchase number that really increases the likelihood of a customer staying for the long run. This might be the second or third, or even fourth purchase, but there is a tipping point where customers are more likely to shop again than not.
At that point, retailers perhaps should be doing everything they can to get customers to convert, including discounting. But more than that, they should be looking at what gets customers to purchase outside of sales cycles, and trying to replicate that at scale.
The important thing is to stay strong and think about the long term goals. Some brands have maintained their brand value by never ever discounting. Others have managed to do it more carefully. Sometimes a surprise discount will give you the results you need. But if you find yourself constantly reaching for the discount button, then it loses its power.
To find out more about how we help retailers to build a dedicated plan to increase customer retention, read up on our Retail Success Model here.