Strategies that can satisfy the customer’s mental need for a discount without eating into a brand’s profitability
A discount directly translates to offering products and services at slashed prices which attracts customers. Discounts can help unlock non-moving inventory, promote new items or even attract new consumers.
However, just slashing prices to convert fence-sitters into paying customers isn’t sustainable. What can help is building the right discount pricing strategy.
Forming an effective discount strategy
An effective e-commerce discount strategy is a means to providing the right deals and offers to the right target audience at the right time.
Let’s say that Diwali is just round the corner, and you know that it is the time when people across your target segment shop the most. How do you stand out from your competitors?
- Identify products that are most likely to be popular during Diwali
- Analyse and compare the prices of these products at your competitors
- Consider slashing your prices for these products to make them more desirable
- Use social media campaigns and reinforcement messages to advertise your discounts
- Highlight some of the major discounts
- Leverage your discount pricing strategy to increase sales
Discounting strategy options
- Volume Discount: A volume discount incentivizes your consumer to buy a larger volume of a particular product with discounts on bulk purchases. Examples include offers like, “Get 20% on purchase of 2 items” or “Get 30% off on purchase of 4 items”.
This kind of discount works best for e-commerce brands where consumers want to buy different varieties of the same product or for products that need to be purchased together.
- Percentage Discount
This is pretty self-explanatory. You can offer a percentage off on a specific product, on the entire order, or even on an entire order with a maximum capping. For instance, 15% off on total cart value up to Rs 500.
You can also offer this discount based on the pricing tier so a consumer might get 10% off if they make a purchase over Rs499. This works well for high-value items.
- Loyalty Discount
A loyalty discount is a way to reward your loyal customers by using incentives or discounted rates. For instance, every time a user reaches a certain milestone or uses their product, Fire Boltt gives them coins for in-app purchases.
- BOGO Sales
A Buy One Get One Free (BOGO) is one of the most widely used discount strategies. It helps increase the average order size, helps with inventory management and even increases up-sell and cross-sell chances.
- Promotional Discount
Brands use this strategy to attract existing or prospective customers by reducing the prices of products for a short time. This discount creates a sense of scarcity and boosts product value.
- Payment Discounts
Offering a discount on the method of payment like 10% off on choosing UPI helps businesses increase their prepaid orders. If a business’s return-to-origin is high on cash on delivery (COD) orders, this strategy can help mitigate that.
- Tiered Threshold Discounts
E-commerce businesses that sell low-value ticket items can implement this strategy since it encourages shoppers to shop more. An example would be, “Shop for items with Rs 229 and get free delivery”.
- Gift Cards
Gift cards are a great gifting option for customers and can also act as promotions for loyal customers. Furthermore, they reduce the chance of exchanges and returns because once gift cards are redeemed, they can’t be used again.
Discounts and customer behaviour
A survey conducted by Springer Open found that people who avail discounts are more likely to become repeat customers. A higher frequency of discounts can increase brand loyalty.
Discount strategies that help reduce cash burn
- Use X% discount instead of $ (Also Known As The Rule Of 100): Jonah Berger, a marketing professor, said in his book ‘The Rule of 100’, for a product priced less than $100, a percentage discount sounds more enticing than say ‘$10 off’ even if the deal is the same. For a product that costs more than $100, the reverse is true.
- Study and protect perceived value: For some products or brands, a discount can negatively impact the perceived value of the business. People believe that luxury goods are superior because they’re expensive. So, if the price drops, consumers might think that the product’s quality is low or there’s another issue.
Therefore, do take human psychology into account when discounting.
- Adding 0.99 instead Of 0.00 makes all the difference: Psychology suggests that a person is more likely to pick a product priced at Rs99 than Rs100. For example, Lenskart uses prices like Rs1199 instead of Rs1200.
- You can offer discounts with Caps too
To ensure you continue to satisfy your shoppers’ desire for getting good deals, you can also cap discounts after an upper limit. For instance, Swiggy and Zomato often offer 50% discount up to Rs200 or something similar, you can apply the same strategy for your brand.
- Free shipping or free gifts on spends over X amount: According to research, 93% shoppers buy more when they have the option of free shipping irrespective of their cart amount. Moreover, many shoppers also love the idea of availing free gift cards when they shop. This can be another strategy that not only satisfy your shoppers but also help your brand reduce cash burn.
- Differential discounting basis past record: A lot of times, shoppers just place an order on COD and cancel it if they get a better discount elsewhere. This can hurt your brand and eat into its profitability. To curb this, you can offer discounting basis the past purchase behaviour of a shopper. If a shopper has often cancelled the order before delivery, they can be termed as high-risk shoppers and maybe a greater discount can be offered to them to ensure the product purchase and delivery is complete. Similarly, they can also be offered a discount on prepaid orders so they are more inclined to choose that mode of payment instead of COD.
- Discount floor pricing to curb losses: Discounts play a major role for some industries even if they marginally affect profit. A floor pricing discounting strategy can, thus, work wonders.
It refers to setting the price of a product in such a way that it doesn’t cross a set threshold. You can set the pricing of your products in such a manner that customers can avail discounts without it affecting your profits.
To conclude
Clearly, discounts are not just vital for gaining traction and increasing conversions, they also help satisfy your customers’ psychology. But for your and your customers’ benefit, picking the right discounting strategy is extremely important.
Kunal Tiwari is the chief product officer at Gokwik
