Grow Your Retail Business By Discounting Smarter, Not Deeper

August 29, 2018

By Greg Zakowicz, senior commerce marketing analyst at Bronto(opens in new tab)

In short:

  • Deep discounts kill margins. However, many retail companies still offer them, as customers have come to expect them.
  • Your business can thrive without an arbitrary onslaught of deep discounts. To start the uncoupling process, run a “discount analysis” to figure out which incentives work best, and among which customer groups.
  • Once you’ve got that info, begin applying discounts smarter, instead of “harder.” This, of course, will increase margins.

As your business grows, it is imperative to protect your margins. However, in the current retail environment, margins face one particularly deadly threat: the endless discounting of products.

Some discounts may be necessary, but poor coupon management eats into these margins. As a retailer, this not only costs you money but also trains your customers to “either wait around or shop around.”

According to eMarketer, an average 57 percent of smartphone users will use a mobile coupon(opens in new tab) in a given year, and 53 percent of tablet users regularly use mobile coupons to make purchases. Retailers beware! There is a fine line between using discounts as a promotional tool and as a crutch.

Businesses care about brand perception, but they also know sitewide discounts needlessly risk long-term profitability for short-term revenue gains. Thus, the question is: How can you meet consumer expectations of discounting while still protecting your brand reputation and margins?

3 steps to a “discount analysis”

If you discount, make it worth your while by understanding the impact of your discounting strategy. Until you do a deep “discount analysis,” you’ll never fully determine how much money you are needlessly giving away. Here's how to get started.

1. Segment.
To determine how your discounts are working across your customers, segment them. Create segments made up of non-purchasers, one-time purchasers, and repeat-purchasers. You can also do this with a variety of other variables and combinations, such as customer average order value (AOV), gender, and time between purchases.

2. Test.
When sending emails, send your current promotional messages to these segments. Then, measure their performance. You’ll get a better view of conversion effectiveness. Even if you are not testing different incentives, knowing how your current customers are redeeming coupons can provide insight into what to test later. The same principles apply to any social ads you’re running.

3. Track.
Knowing how your coupons are being applied across different segments will give you general baselines to measure against. Once you feel confident in how these different segments are responding, it’s time to begin testing incentives. 

Create multiple incentives, and test into each of these segments. You may find that “10 percent off” performs better than “15 percent off,” or that “15 percent off” performs better than 20 percent. Maybe you will find that a small discount with a higher minimum spend threshold performs the best. Whatever the case, you will get a clearer view of how your customers respond to promotions.

With a discount analysis, you’ll likely learn that you don’t need to give away the bank to grow sales. 

This can impact parts of your marketing strategy including website, email or SMS acquisition, paid search, PPC campaigns, social ads and email marketing strategy. For emails, discounting smarter in not only your day-to-day promotional messages but also your automated messages can have a meaningful impact.

For example, if you know X incentive can acquire and convert new email subscribers at a higher rate, your email acquisition strategy can be adjusted accordingly. If you discover that men are more likely to purchase with slightly deeper discounts while females are focused more on style and respond better to shipping speed, that discount can be adjusted accordingly. This could have wide-ranging impact, from welcome messaging and browse or cart abandonment messages to everyday promotional messages.

Discounting smart from the onset can help set expectations for your consumers. 

This will allow you to discount less in day-to-day emails, as well as other automated messages, like post-purchase or cart abandonment messages. This will allow your brand to hone in on what separates it from the competitors, such as customer service or other brand values.

Ultimately, understanding what your audience responds to allows you to apply these practices across your online marketing channels. By reducing the reliance on heavy discounts to drive sales, you’ll be able to provide consumers with what they have been trained to expect (discounts) while focusing on the actual value and benefits your company has to offer.

Deep discounting kills margins and prevents a business from growing to its potential. It’s time to understand your discounting strategy and to start discounting smarter, not deeper.

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