By Katelyn Merendino, retail reporter
⏰ 4-minute read
In short:
- Customers now expect holiday sales to last longer than possibly ever before. Consider using smart discounting to ramp up profits while meeting their expectations.
- Four types of flexible discounts are especially helpful during the holidays, and each corresponds to a separate business goal.
- Even if holiday discounting isn’t feasible for your business, certain creative tactics will make your brand shine brighter than the star on the tree.
Year after year, the holiday promotional season seems to start sooner, kicking off well before the Thanksgiving Day football games. In 2017, every day in November drove more than $1 billion in online sales — each day averaged $2 billion in overall sales.
As retailers attempt to keep pace and vie for consumer dollars, Black Friday(opens in new tab) has gradually given way to Gray November, a month-long period of deep discounts (which includes a shopping sprint we’ve affectionately coined the Cyber 10(opens in new tab)). While consumers have come to expect show-stopping holiday deals and doorbusters, the impact of these promotions on retailers isn’t as clear.
How do you compete with large discounts from big-box stores and online behemoths without eating into your margins? When do discounts attract customers, and when can they harm your brand’s reputation?
Here are a few flexible discounting strategies that allow you drive sales in different ways, lift profits and build customer loyalty each holiday season.
Types of discounts and when to use them
For most retailers, holiday promotions are essential to staying relevant amid the sea of offers that bombard consumers each year. However, discounting heavily can be costly(opens in new tab) to your business — especially if you’ve fallen into the all-too-common trap of relying on this strategy year-round.
You can use these four tactics to engage and entice customers this holiday season — while preserving your profits.
1. Category sales to grab (and keep) shoppers’ attention
Marking your entire store 50% off is an easy way to grab shoppers’ attention, but it’s not sustainable when the holiday season essentially spans two months as it does now.
Alternately, discounting by category — for example, 30% off jeans or $20 sweaters — can space out incentives and give subscribers a reason to keep checking their emails.
Spacing out incentives can give subscribers a reason to keep checking their emails.
Category sales also allow you to sell products at a smaller discount. If 40% off jackets is your daily deal and the rest of your store is only 10% off, customers who want a jacket may purchase other items at the same time to avoid placing multiple orders.
2. Tiered discounts to boost incremental sales
Tiered discounts come down to the principle of “spend more, save more.” Offering increased discounts based on spend (e.g., 10% off $50, 15% off $75 and 20% off $150-plus) boosts average order value, as shoppers are incentivized to hit the next threshold.
Offering discounts based on spend boosts average order value, as shoppers are incentivized to hit the next threshold.
Similarly, if you sell a wide variety of products, customers may be compelled to check off a large portion of their holiday shopping list to reach the highest tier and save time they would’ve spent visiting multiple stores.
3. Flash sales to encourage a quick sales surge
The long lines on Black Friday prove that some shoppers only care about price and will hold out for the best discount. The good news is that when they find it, they’ll often purchase instantly.
Flash sales should focus on popular products and last for a short window of time to encourage these price-sensitive customers to buy now. They’re most effective when offering deep discounts — but that doesn’t mean you have to sacrifice your bottom line.
Flash sales are most effective when they offer deep discounts.
You should align these promotions with your overall business goals. For example, if you’re aiming to gain new customers, target subscribers who’ve never made a purchase with increasing discounts and relevant product recommendations. If you need to move inventory, try offering “buy one, get one 50% off” across a range of categories.
4. VIP offers to reward your loyal subscribers
The Pareto principle suggests that the top 20% of paying customers are responsible for 80% of your revenue. While you don’t want to train VIPs to wait for sales, the holiday season is the perfect time to reward these high spenders and create a sense of exclusivity.
While you don’t want to train VIPs to wait for sales, the holidays are the perfect time to reward them.
If you don’t have a VIP program, determine the top 20% of your customer base with a segment based on total number of orders or total dollar value spent. Giving them early access to your Black Friday deals, free gifts with purchase or additional discounts on top of your regular promotions makes them feel valued and helps foster year-round loyalty.
When not to discount
Despite the ubiquity of holiday sales, retailers shouldn’t necessarily resort to slashing prices. If you’re a luxury or niche brand, discounting can potentially erode your reputation and consequently your profits.
Fashion retailers like Ralph Lauren experienced years of declining sales in part due to widespread availability and excessive promotions at low-tier department stores.
But since pulling inventory and scaling back discounts, these brands have started to reverse the trend. Using that strategy, Ralph Lauren hit $120 million in sales over the 2018 holiday quarter, versus $82 million the year before.
What to do instead
If you want to protect your exclusive reputation or yours is a smaller business that can’t afford significant markdowns, you can stand out during the holiday season by determining what your differentiators are and calling them out wherever possible.
Maybe you can’t offer 50% off, but you can provide free or expedited shipping. Or perhaps you have a compelling social mission, an innovative in-store experience(opens in new tab), or outstanding customer service and return policies(opens in new tab).
Take your differentiators and tout them on social, highlight them in your emails, and make them prominent on your website. Show your customers your value-add, and you can reach your holiday goals without breaking the bank.
Wrapping it all up
For holiday shoppers, sales and promotions are as expected as crowded parking lots, unconvincing mall Santas and “Jingle Bell Rock” on repeat.
But with the rise of Gray November, discounting smarter and preaching your differentiators is key to protecting your margins, strengthening your brand and retaining customers long before — and after — the holiday season winds down.