It is estimated that Americans will spend $123.7 billion online this holiday shopping season. With Americans spending so much money in such a short period of time, the priority for retailers and service companies is getting as much of the $123.7 billion pie. As an incentive for consumers to buy their product over their competitors’, many companies discount their products. Is discounting your products and services necessary to sell to holiday shoppers? Tobaria and Aaron debate this myth in today’s episode of The Marketing Myths Podcast.
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Show Notes
Do you want that kind of customer?
Price shoppers have zero brand loyalty. Instead, they seek out the best price and the bragging rights that come with snagging the best discount.
And that’s the kind of customer you want to attract: A loyal one who will want to come back again and again because they like what you’re selling and being affiliated with your tribe.
Pros
- Can drive more sales volume to your business
- Bring in new customers
- Discounts make your customers feel good
- Discounts also make it less likely for people to compare your products with other brands
- During holidays or special discounting days, most people tend to be in a “buying mindset”. Your business can have a share of that influx of consumers if you offer discounts during these times. Seasonal discounts can also help businesses shed out-of-season inventory
Cons
- Discounting is like a drug. You like the sales spike. Your customers like discounts. When you train your customers to expect a discount, they won’t buy without a sale.
- Think the JCPenney strategy of removing discounts. 90% of JCP’s sales came from discounted merchandise.
- Erodes the value of your brand. Once someone gets a discount on a product, they are no longer willing to pay as much money for the same product. They will think it’s of lower quality.
What to do instead?
ADD VALUE
- Retail Clothing: Add a style consulting session for free with a purchase of $100.
- Website Developer: Offer a free landing page with the purchase of a website.
- Electronics Retailer: Offer free training of purchased items.
- Spa: Offer relaxation tips that will get customers through the holiday madness.
- Restaurant: Give away free holiday recipes.
- Provide EXCEPTIONAL customer service
Set Your Goals First: Before Discounting Your Prices
Potential Goals:
- Acquire New Customers – You’re offering a discount because you want new customers to be interested in your products or services. With a discount, they can try what you offer with lower risk on their part. Plus, if the discount is a limited time offer, new customers will have a reason to try your products and services now, rather than later.
- Increase Your Sales – Your goal is to sell more units of your product or service, regardless of how many customers buy. This could mean going for volume sales, bundling products with each other, and having customers buy as many items as possible before they check out.
- Gain Repeat Customers – Getting repeat buyers requires a different mindset. You’re using the discount to encourage brand loyalty rather than enticing people to try your products. This discount is usually delivered via a loyalty program for current customers—and it works. According to research from a loyalty marketing firm, 55% of people enroll in loyalty programs to get discounts on purchases.
- Get Rid of Old Inventory – Sometimes, you need to run a discount just to clear your old inventory. Perhaps you need to make room for new products, update a product line, or focus on better performing products. Contrary to having a goal for increasing sales, the margins aren’t as important here. What matters is how quickly you get rid of stagnant items that otherwise wouldn’t sell.
Types of Discount Strategies for Small Businesses
Bundled Discount
Rather than lowering the selling price of one product or service, you lower the price of a group of items bought together.
For an example, let’s say you have a company that creates beard care products. You can sell discounted bundles of your products. These bundles can be different varieties of the same product type—such as beard oil or mustache wax—but are cheaper bought together than when bought individually. Customers can then try different scents of the same product to find the one they like best, or they could change up the scents they use daily.
- Bundling Increases the Number of Items You Sell
- Sell Popular and Less Popular Products Together
- Customers Get to Try Your Other Products
Volume Discount
When you offer a volume discount, your customers end up paying less per item as long as they buy a larger amount of that item.
Because you’re enticing customers to buy more units per order, volume discounts are a good option if you’re looking to clear inventory or increase the average value per order.
Free Shipping
Several studies show that offering free shipping can increase sales. Free shipping can also lessen your cart abandonment rates. According to a study from Business Insider, high shipping costs are the top reason why shoppers abandon their online carts.
But the danger with free shipping is that packaging and deliveries cost. Not charging for shipping can hurt your business if you’re working with low margins or if shipping costs aren’t factored into your product prices. To make sure that free shipping pays off, you can have free shipping available when an order reaches a certain amount.
How to Ensure Profitability When You Offer Discount Pricing
Understand Your Margins
- Keep Your Marketing Costs Low
- Segment your offers
- Offer upsells
Manage Customer Acquisition Cost
- Convert New Customers to Repeat Customers
- Maximize Your Margins During a New Customer’s First Order
- Reduce Online Shopping Cart Abandonment
Targeted Sales Volume
Since increasing sales is a common goal for businesses offering a discount, you need to set your sales targets. But don’t just set an arbitrary amount. Make sure that your sales targets are high enough that you maintain or increase your profits, even if you’ve lost a bit of your margins from the discount.