{"id":86370,"date":"2021-07-03T14:01:00","date_gmt":"2021-07-03T21:01:00","guid":{"rendered":"https:\/\/thegood.com\/?post_type=insights&p=86370"},"modified":"2024-05-29T10:42:18","modified_gmt":"2024-05-29T17:42:18","slug":"discount-pricing","status":"publish","type":"insights","link":"https:\/\/thegood.com\/insights\/discount-pricing\/","title":{"rendered":"The Definitive Guide to Effective Ecommerce Discount Pricing"},"content":{"rendered":"\n

Many ecommerce businesses lean heavily on discount pricing to help carry their brand through difficult economic times or to drive conversions. <\/p>\n\n\n\n

Take the coronavirus pandemic, for example. According to a recent McKinsey & Co survey<\/a>, 40% of consumers are more mindful of where they spend their money, and 32% say they are moving to less expensive brands and products to save money. <\/p>\n\n\n\n

Competing with low-priced products is hard, which is why plenty of retailers turn to discounts. On the surface, this seems to be the right thing to do, especially when 60% of US consumers<\/a> say discounts are more important to them while shopping online since the start of the coronavirus pandemic. <\/p>\n\n\n\n

But while discounted pricing can certainly boost your conversion rate, it lowers returns on each conversion, lowers average order values, and can end up causing real revenue to decline.<\/p>\n\n\n\n

I know how you feel \u2013 darned if you do, and darned if you don\u2019t.<\/p>\n\n\n\n

There are times when discount pricing can pay off, and there are times when it can hurt you a whole lot more than it helps. In this guide, I\u2019m going to show you how to decide when and how strategic discount pricing can make sense, and when it doesn\u2019t.<\/p>\n\n\n\n

We\u2019ll cover the types of discount pricing, the psychology behind discount pricing, how to develop a winning discount pricing strategy, advantages and disadvantages, and show you some examples of discount pricing in action.<\/p>\n\n\n\n

After that, we\u2019ll talk about how to compete (and win) against a competitor\u2019s discount pricing campaign. In other words, this is a full-spectrum guide ecommerce managers can use to know when, how, and why to pull discount pricing out of the tool box.<\/p>\n\n\n\n

What is a discount pricing strategy?<\/strong><\/h2>\n\n\n\n

Discount pricing is a strategy often used to generate more sales \u2013 typically by dropping the prices you ask for your goods or services. However, discounting too much or too often can eat into your bottom line revenue and do major damage to your brand.<\/strong><\/p>\n\n\n\n

That\u2019s why it\u2019s essential to understand the fundamentals of discount pricing strategies, including the advantages and disadvantages that accompany them.<\/p>\n\n\n\n

The common types of discount pricing<\/strong><\/h2>\n\n\n\n

Discount pricing typically falls into one of seven basic categories. Understanding these categories can help you determine whether a discount campaign is appropriate for your situation at any given time.<\/p>\n\n\n\n

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  1. Volume discounts:<\/strong> The more you buy, the less it costs. Quantity discounts can convince customers to purchase in bulk. Loyalty programs and cards that give a free item after a certain number of items are purchased can be another way to approach volume discounts while bundling items together.<\/li>\n<\/ol>\n\n\n\n
    \"Luma<\/figure>\n\n\n\n

    Luma gives a 15% discount for customers that buy six water bottles, 20% for customers that buy 12, and 25% for those that purchase 24. <\/p>\n\n\n\n

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    1. Seasonal discounts:<\/strong> These are an excellent way to jumpstart sales at the beginning of peak seasons or reward customers who purchase during dormant times. Offering discounts based on the time of year can not only generate excitement, but can help you clear out the previous season\u2019s inventory to prepare for the coming season.<\/li>\n<\/ol>\n\n\n\n
      \"Dogeared<\/figure>\n\n\n\n

      Dog Eared gives customers 20% off around Mother\u2019s Day. <\/p>\n\n\n\n

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      1. Promotional discounts:<\/strong> Keep them short-term and aimed at driving a special sale. This is the type of discount you don\u2019t want to leverage recklessly. Promotions that occur too frequently can signal your customers not to order from you until there\u2019s another promotion. Consumers expect holiday sales, so don\u2019t be afraid to jump on that bandwagon\u2026 just be careful about making promotions a major part of your sales strategy.<\/li>\n<\/ol>\n\n\n\n
        \"Boohoo<\/figure>\n\n\n\n

        Boohoo is renowned for hosting promotional sales<\/a> almost every single day. <\/p>\n\n\n\n

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        1. BOGO sales:<\/strong> You\u2019ll want to check local laws on this one. BOGO offers (buy one get one) often claim the second item is \u201cfree.\u201d If you must buy something to get something, though, you\u2019re really getting a 50 percent discount, not a \u201cfree\u201d item. Be sure to describe the BOGO accurately and either spell out the real savings or make them easy to calculate.<\/li>\n<\/ol>\n\n\n\n
          \"BOGO<\/figure>\n\n\n\n

          Simcha\u2019s offers a BOGO deal on their women\u2019s and children\u2019s winter clothing. <\/p>\n\n\n\n

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          1. Loyalty discounts:<\/strong> This can be an amazingly effective way to build the bond between you and your best customers. Be clear on the terms and make sure the discount really is ONLY for those who qualify \u2013 whether by being a repeat customer, a longtime customer, a membership customer, or other status definer. Make your customers feel special, and they\u2019ll make sure you stay in business.<\/li>\n<\/ol>\n\n\n\n
            \"Jane's<\/figure>\n\n\n\n

            Jane\u2019s Boutique gives returning customers 30% off their next purchase. <\/p>\n\n\n\n

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            1. Membership discounts:<\/strong> These can be reserved for card-holding members of your private club (Amazon Prime members, for example), for members of someone else\u2019s club (AARP), or for those who qualify by being a military veteran, a senior citizen, or some other designator. Just as with loyalty<\/a> discounts, showing appreciation for your customers is always a good idea.<\/li>\n<\/ol>\n\n\n\n

              The psychology of discounting<\/strong><\/h2>\n\n\n\n

              It\u2019s easy to think that discounting was a byproduct of online shopping. The increase in competition and the need for instant gratification has definitely seen the number of brands using discounts soar, but the strategy has been around for a lot longer. <\/p>\n\n\n\n

              In fact, it was Coca Cola that started the trend. They were the first company to lure in customers with discounts as far back as 1887<\/a>. Customers could use a coupon to redeem a free glass of Coke<\/a> – so simple, but such a huge leap for the retail world. <\/p>\n\n\n\n

              Today, it\u2019s no secret that there are psychological principles at work in the buying and selling process. Most have heard of Dr. Robert Cialdini\u2019s book, \u201cInfluence: The Psychology of Persuasion,\u201d but Cialdini didn\u2019t invent the ideas covered there. He simply collected and codified them. <\/p>\n\n\n\n

              Discount pricing comes with its own set of psychological touchpoints:<\/p>\n\n\n\n