Can Retail Discounts Increase Sales and Customer Loyalty?
U.S retail sales rose by 18% in May as stores reopened, following a steady decline in consumer spending during the Coronavirus lockdowns. As retailers work to get online fast, merchants have considered using discounting on their online stores to attract new customers, and to offload products that didn’t sell during the lockdowns.
Discounting is a way that online retailers can produce immediate cash flow to fuel their long term retail strategy. However, it is also a highly controversial topic as extensive discounting has been thought to dampen sales value.
To further dive into this debate we will take a look at the pros and cons of discounting, and the types of offers you should be aware of. Next, we will look at ways to stay profitable while discounting, and lastly alternatives to discounting. By using these strategies, you will be able to increase your brand’s customer loyalty and trust.
The Pros of Online Store Discounts
- Easy and fast - Online offers can be set up in Shopify or using apps. They’re usually simple to track using Shopify’s Sales by Discount reports.
- Increase customer acquisition - Discounts are a major consumer motivator. Last year, Black Friday saw a record of $7.4 billion in online sales.
- Increase short-term conversions - Promotions can help move stock faster from your inventory to your customers. Discounts can help you meet short-term sales goals fast.
The Cons of Online Store Discounts
Brand damage - Online offers can be good for the short term, but can damage your sales margins and profitability in the long run.
Lower long-term conversions - Conversions may lower outside of your sales periods, as discounts can train customers to wait for sales before making purchases.
- Attracts sales outside your target - Discounts often drive newer, less loyal shoppers who are typically outside of your target audience.
Define Your Sales Goals
Defining your goals for discounting will help you make decisions on what types of products to put on sale, when you should run promotions, and what type of discount to offer. You’ll need to understand your objectives for running a promotion and how it fits into your overall sales goals.
Here are a few motivations that can guide your sales discounts:
- Gain new customers - If your objective is to acquire new customers, you might want to cast your net wide. Store-wide sales often attract a broader demographic of customers. If they like what they try, the new customer might return to your site after your sale ends.
Boost your sales - If your goal is to sell as many products as possible, increasing sales is a simple goal to set. You can do this by launching a customer loyalty program, using product bundling or offering conditional sales promotions.
Re-target customers - Retargeted promotions are effective to reach people who have visited your site before through social media or Google. This type of ad incentivizes the user to come back by offering them a promotion.
- Clear out old stock - Discounting can help you make room for new inventory. For example, if you want to make room for your new fall collection, you can discount your summer products. Likewise, you can discount fall items as you bring in new winter stock.
Types of Discount Offers
There are multiple ways to offer discounts and promotions on your Shopify store. Here are a few of the most popular methods:
- Percentage off discount - Popular incentives include discounts such as 10% off, or larger discounts to drive sales faster such as 25-30% off. If you want to liquidate your store, savings of 50-70% off can help you move merchandise faster. On Shopify you can apply these discounts to selected collections, products, or geographic locations.
Dollar off discount - Offering dollar off promotions can make people feel like they are throwing away money if they don’t use it. This can be paired with a minimum purchase to increase perceived value. For example, “Spend $150, receive $30 off.” This strategy is often most useful for offering discounts at a high price point.
- Buy one get one free - A free offer can work to boost brand awareness and attract new shoppers. Customers often love to get, or perceive that they are getting, something for free. It’s also great for attracting impulse purchases by offering a “free” gift for a full-price purchase. Try offering a popular product with a freebie that’s less expensive or hasn’t sold well to get a higher value sale and move inventory faster.
- Free shipping - Shipping costs can be a major setback for customers and can lead to shopping cart abandonment. Offering free shipping with a minimum purchase can increase your average order value. You can achieve this by setting up shipping rates in Shopify. To add more value, combine this discount with other promotions such as a discount code for new email subscribers.
Bundled discounts - This offer lowers the price when a customer buys more items together. This discount can increase your average transaction size because you can sell multiple products per order. With more items sold, costs per order are decreased. Consider pairing items that aren’t strong sellers with products that are popular to see if demand increases after adding a discount.
- Conditional promotions - This means you’ve set a limitation or condition that shoppers need to meet in order to redeem an offer. Black Friday or Cyber Monday sales are an example of promotions that are conditional with seasonal or time-limited discounts. These are often shorter-term discounts that can protect your sales margins better.
When and Where to Offer Discounts
There are countless ways you can use sales, discounts, deals and offers to drive customer loyalty and trust to your online store. Here are some of the most popular examples:
First time shopper offer - A first time offer can help incentivize a prospective visitor to convert into a paying customer. For example, you could provide a 20% off discount or free shipping for new customers who sign up to your newsletter email list.
- Newsletter email list - Building an email list is extremely valuable to gain long term relationships with customers. Consider providing an offer in exchange for contact information. Offering a discount will also increase your chances of making a conversion.
- Seasonal and holiday sales - Holidays provide an opportunity to share relevant discounts and promotions with customers. Major holidays include Black Friday, Cyber Monday, Mother’s Day, Easter, St. Patrick’s Day, Columbus Day, and many more.
Diff’s client Gymshark uses the term “blackout” to celebrate their own Black Friday annual sale where users would expect to see 70 per cent off, site-wide. Their blackout sale offers some of the best bargains for gym-wear and athleisure.
Referral promotions - If a shopper is referred by a friend, they will be more likely to make a purchase. You can offer a discount or promo code to the person making a referral, the person being referred, or both.
How to Stay Profitable When Discounting
Before offering a discount, it’s important to calculate whether you will stay profitable. Here are a few strategies for achieving this outcome:
- Understand your cost per customer acquisition - Keep your marketing costs as low as possible to ensure your sales margins stay healthy. Check out this calculator by Shopify to determine the best selling prices for your products. This can also help you save costs while increasing your profits. Offer promotions to existing customers, email subscribers, and your social media community. When spending on advertising to attract new customers, calculate your projected ROI from the discount, and make sure to account for all of your costs.
- Discount underperforming stock - As retail consumer demands shift, businesses with low demand categories will be vulnerable to oversupply. For example, many non-essential retailers were hit hard during the COVID-19 pandemic. As a short term goal, discounting can be used to address the problem of sitting on deadstock. Discounting can help you sell off items that create low value for your business. This will help you prioritize buying and selling higher value products in the future. You may also consider heavily discounting, bundling or selling to liquidation retailers. Doing so can create a fast cash flow to help you replenish high value inventory for the long term.
- Create co-marketing opportunities - To attract more happy customers, create co-marketing partnerships with local businesses for cross promotion opportunities. This can help both of your companies attract new customers. It’s also worth considering a digital gift card program as part of your customer experience. This can help you boost your social media and email marketing campaigns. Gift cards will provide you with an immediate flow of cash, and will ensure that customers return to your store in the future.
Cut shipping costs - There are a few ways you can cut down on your shipping costs. You can manually fulfill orders if it’s possible. Shopify Shipping offers competitive rates with major carriers.You can also print your own labels at home. Setting up local delivery options can also keep your costs low.
- Keep marketing relevant - Stay on top of today’s consumer needs and trends. This will help you rethink your marketing and advertising strategy. If consumers are looking for work at home loungewear, for example, you may want to focus your core discount messaging to compliment a WFH culture.
- Extend your return and exchange policy - Extending your policy can help customers feel more confident that they won’t get stuck with a product they don’t want. This can alleviate buyer doubt and also encourage repeat purchasers of your product or services.
Alternatives to Discounting
Discounting can be a great way to bring in new customers, but there are also other powerful methods you can use to build customer loyalty and trust. The following alternatives to discounting can help you acquire more repeat customers, and increase sales and revenue:
- Focus on high-value, loyal customers - If your goal isn’t to acquire new customers, then heavy discounting might not be the right choice for you. Instead, focus on maintaining your loyal customers by offering appointment based shopping or extending return policies. This can help drive repeat business. If operating during the COVID-19 pandemic, communicate often about the safety measures you are taking to keep shoppers safe.
- Hibernate evergreen stock - Some items never go out of style, like basic tees or chino pants. Consider holding onto these items instead of discounting them. This way, they can be reworked into future collections.
Focus on digital transformation - Retail is going through a digital transformation. To keep up, include digital tactics in your marketing strategy such as direct emails, live chats, virtual fashion shows or product launches. You can also use Facebook, Pinterest, TikTok, and email marketing to attract new leads and build long-term customer loyalty.
Align with customer values - The key to generating future sales is to appeal to buyers who value responsible consumption. Provide clear and detailed information about processes and products. Most importantly, stay connected to your customers and listen to what they want. For example, pay attention to craftsmanship and heritage, if this is what appeals to your audience.
- Personalization - Using personalization tools is another way to improve ecommerce conversions. By segmenting your audience according to data such as age, location, gender, or hobbies, you can align marketing with your customers’ needs. This will result in higher lead captures and conversions for your online store.
- Limited-time drops and online sample sales - Limited-time drops can make collections feel more meaningful and increase demand. You can achieve this by reducing the amount of products you offer at one time, or by holding sample sales in a timely manner. Diff’s client Kith, for example, dropped only 22 limited pieces in their Spring 2020 collection. This strategy can also help brands rethink the supply chain to make more sustainable operations with fewer stakeholders.
- Upcycling goods - Instead of discounting unsold stock, some brands are choosing to reuse them. Reusing stock and fabrics from “archive sales” is a practice used by luxury brands like Ganni, for example. Upcycling will also appeal to Gen Z because they are interested in products that are authentic, and which tell a story.
Diff’s client Goodee World fosters transparent sourcing and upcycling to offer products that make a social impact with good design and good purpose. Their stories highlight the diverse voices of designers, artisans and brand founders that inspire their collections.
- Slow production down - If you know that your demand isn’t meeting supply, it’s wise to cancel or defer orders you don’t need. This will also push back future payments that you owe for supply chain costs. It’s time to rethink standing orders for raw materials if you do not need them. This way, you won’t be stuck with inventory that you cannot move.
Use Discounts to Grow Your Sales
Discounting can be incorporated into your overall sales strategy when done correctly. To do this, it’s important to stay aware of your sales margins and increase communications to align with your customer expectations. Promotions done strategically can provide you with the immediate cash flow that you need to prioritize your overall business efforts and focus on buying and selling higher value products.
By following the mentioned strategies for discounting and discounting alternatives, you will increase customer loyalty and trust for the long-term. Even when consumer spending rates increase, it’s still worth considering discounting as a strategic tool for maintaining customers and attracting new store visitors.
Our team of Shopify experts are well versed in helping online retailers optimize promotions, run A/B tests and grow their marketing efforts. Contact us if you need help with your customer acquisition strategy. We’d love to learn more about your ecommerce project!
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Written by Debra Weinryb, Content Strategist at Diff Agency