Discounts and coupons are powerful tools to attract customers, increase sales, and clear inventory. But they can also backfire if you don't use them strategically and wisely. In this article, you'll learn how to use discounts and coupons effectively to drive sales in the context of merchandising.
Before you offer any discounts or coupons, you need to have a clear idea of what you want to achieve and how much you can afford to lose. Do you want to increase your revenue, your profit, your customer loyalty, or your market share? Do you want to move specific products, categories, or seasons? Do you want to target new customers, existing customers, or both? Depending on your goals, you'll need to calculate your break-even point, your margin of safety, and your optimal discount rate.
Coupons and discounts can be powerful tools for driving sales by creating a sense of urgency and perceived value among customers. By offering limited-time discounts, businesses can encourage customers to make purchases more quickly, leveraging the fear of missing out (FOMO). Coupons can also attract new customers, incentivize higher spending (e.g., discounts on minimum spend), and encourage repeat business through loyalty programs. Additionally, they can be used strategically to clear out inventory or promote new products. However, it’s important to balance the use of discounts to avoid devaluing products or services and ensure long-term profitability.
Absolutely, setting clear objectives before offering discounts or coupons is crucial. Define whether you aim to boost revenue, profit, customer loyalty, or market share. Specify if you want to focus on particular products, categories, or seasons, and determine your target audience—new customers, existing ones, or both. Calculate the break-even point, margin of safety, and optimal discount rate aligned with your goals. This strategic approach ensures that any promotional efforts are not only enticing but also financially sound, contributing to the overall success of your business.
There are many types and formats of discounts and coupons, such as percentage off, dollar off, buy one get one free, free shipping, loyalty rewards, referral codes, and flash sales. Each one has its own advantages and disadvantages, depending on your product, customer, and competition. For example, percentage off discounts can create a sense of urgency and value, but they can also erode your margins and brand perception. Dollar off discounts can be more appealing to customers who want to save money, but they can also reduce your average order value. You need to choose the type and format that best suits your goals and margins.
In my experience giving the client multiple ways of receiving their coupons helps with ease of use for each client. Some clients cling to the paper coupon while others prefer digital. Giving clients multiple ways to receive coupons will ensure wide spread audience can be reached.
Not all customers are the same, and not all discounts and coupons are equally effective for them. You need to segment and target your customers based on their behavior, preferences, and needs. For example, you can use discounts and coupons to attract new customers who are price-sensitive, to retain existing customers who are loyal and repeat buyers, to reactivate dormant customers who have not purchased in a while, or to cross-sell or upsell customers who have already purchased something. You can use different channels, such as email, social media, or mobile apps, to reach your customers with personalized and relevant offers.
You can't just set and forget your discounts and coupons. You need to test and optimize them constantly to see what works and what doesn't. You can use various methods, such as A/B testing, split testing, or multivariate testing, to compare different versions of your offers and measure their impact on your sales, conversions, and profits. You can also use analytics tools, such as Google Analytics or Shopify Analytics, to track and monitor your key performance indicators, such as click-through rate, redemption rate, average order value, and customer lifetime value. You can use the data and insights to improve your offers and make them more effective.
Discounts and coupons can be great for driving sales, but they can also have some negative consequences if you overuse them or misuse them. You need to balance the benefits and costs of your offers and avoid some common pitfalls, such as cannibalizing your full-price sales, devaluing your brand image, attracting low-quality customers, or creating customer expectations for discounts. You need to use discounts and coupons sparingly and strategically, and always communicate the value and quality of your products and services. You also need to set clear terms and conditions, such as expiration dates, minimum purchase requirements, or exclusions, to prevent fraud and abuse.
I have observed many clients forgetting their coupons. To ensure a positive client engagement an option of having a coupon code at POS could help alleviate client frustration and increase productivity.