Discounting 101: Consumer‑Driven vs. Market‑Driven Discounts
By Steve Wood | May 27, 2015
Discounting 101 is a series on all-things discounting strategy, based on the ebook, “The Ultimate Guide to Discounts” available for download now.
So you’ve realized that discounting is a vital strategy to spur conversions, and you’ve set up the proper testing procedures, as discussed in Part 2. But how do you figure out what types of discounts are right for your brand?
There are many different flavors when it comes to discounts, but they all fall into two main categories: consumer driven, which are triggered by consumer behavior, and market driven, which consider the competitive and economic environment in which your company operates.
Consumer-driven discounts can be powerful tools to drive conversions, as long as they’re founded on strong data and refined with testing. Here are the most effective types:
Welcome series. New customers are most engaged when they first come across your brand, so using a discount in a series of welcome messages can help convert those early-stage interactions into sales.
Shopper Abandonment. Use discounts to motivate shoppers who are on the fence to complete their pending shopping cart purchase.
Re-engagement. Encourage lapsed customers to return to the fold by offering an incentive to buy.
Flash Sales. Offering a significant discount that’s available for a limited time only can make your customer appreciate both scarcity and urgency without sacrificing brand integrity, even if the discount is deep. Since mobile app users are already highly engaged with your brand, push notifications from the app promoting flash sales can really drive conversions.
VIP Programs. Discounts that reward your best customers for their purchases can go a long way toward increasing customer loyalty and satisfaction.
Customer Acquisition. Use this discount sparingly. Confine the tactic to weak channels that are historically weak at generating repeat purchases and lifetime customer value and to seasons when generating volume is your paramount concern.
Create brand loyalty. Deploy occasional discounts to delight your customers and increase their devotion to your brand. Triggered discounts effectively show consumers that you’re not out to gouge them, and also make it OK for them to pay full price sometimes.
Market-driven discounts operate a bit differently. They’re not triggered by something the customer does – or fails to do – but rather they respond to some business imperative. Here are some options to consider:
Holiday Programs. There’s no escaping it. Consumers expect special promotions tied to key holidays, such as Christmas or Valentine’s Day. When these discounts are used effectively, they can boost both your response rates and your results, since shoppers are actively looking for seasonal savings.
Clearing Aging Inventory. Train your customers to expect discounts on items that have aged out of season. That way, they won’t be expecting deep cuts on new merchandise.
New Product Promotion. Offering an attractive introductory price for a new item, particularly one that appears to be below retail price, can entice shoppers to take a chance on a new product or service.
Increasing Market Share. Some products or services you offer are so critical to your brand’s positioning and strategy that they should never be discounted. But for some brands, it makes sense to occasionally discount core offerings or specific accessories to hold onto market share or mindshare.
Responding to Competitors. If a serious rival starts discounting, you might have to follow suit, but it has to be done in such a way that consumers stay loyal.
These discount strategies can all help you to boost your average customer order sizes and purchase frequency. As long as you have the data to back up the value of these discounts in the long term, you’re good to go.
In Part 4 of our series, we’ll talk about how discounting can play a role in building engagement with new customers. Stay tuned.
—Steve Wood, Optimization Analyst at Sailthru
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