Strategic Discounts - When and How to Offer Price Incentives

Discounts can be a powerful tool to drive new customers, but they must be used sparingly. Otherwise, they can create unsustainable expectations among your customer base.

How and when you use discounts can dramatically impact your subscription business’s growth. Learn about best practices for using discount strategies, including how to use volume or quantity discounts.

Discounts for New Customers

Offering new customers a discount on their first purchase is one of the easiest ways to attract their attention and convert them into repeat buyers. However, it’s important not to overdo this strategy as frequent discounting can create a dependency among consumers who will only buy your products when they are on sale. This will ultimately damage your brand image and make them reluctant to pay full price.

Promotional discounts are available for a limited time only and usually tied to an event like Valentine’s Day or Black Friday. They help increase the sense of urgency and encourage visitors to buy now (and take advantage of the discount) rather than later (when they will have to pay full price).

Volume discounts offer a percentage reduction on each additional item that a customer purchases. For example, if the initial cost of one T-shirt is $25, then a customer can get a second T-shirt for 40% off. This type of discount is great for increasing the average order value and helping to clear inventory.

Seasonal discounts are promotions offered during certain times of the year to boost sales and drive traffic. For example, Dick’s Sporting Goods offers 50% off on all shoes during the summer to drive foot traffic and sales. This helps them clear out their inventory of sandals and flip flops before moving on to winter footwear.

Special offers triggered by events or holidays are known as seasonal discounts and help to boost sales, drive traffic and encourage customer loyalty. For example, retailers often offer big discounts on large-ticket items around the Super Bowl to drive impulse purchases and reduce the financial burden of storing and selling the products during off-season months.

Using strategic discounts can be a great way to generate quick interest in your products and drive conversions, but it’s important to keep the user journey in mind. Overusing discounting can have negative effects on your brand image and lead to a long-term decrease in revenue. To avoid this, use a combination of discounts and incentives for different user segments to maximize your results. OptiMonk makes it easy to optimize your offers and track their performance with our real-time analytics platform. Get started for free today!

Discounts for Existing Customers

Discount pricing can also be used to incentivize existing customers to continue purchasing from your brand. For example, a company that offers subscriptions can use discounts to upgrade existing monthly customers to annual subscriptions. This strategy can help increase customer lifetime value and recoup revenue lost from the initial discounted sales, but it is important that brands are careful not to use this discounting strategy too frequently or it will have a negative impact on their brand image and raise the perception that they are a “discount” company.

Another strategy is to offer a temporary free trial period, which can be paired with money-back guarantee to create a risk-free experience for new customers. This can be an effective way to generate a large number of conversions quickly and grow the audience for your brand.

Using a time-limited discount is a great way to instill urgency and create a sense of FOMO for your customers. A countdown timer is a popular way to implement this strategy, which can be found in many welcome popups and even some cart abandonment emails. For example, a countdown of the end of summer with a discount to buy outdoor gear would be irresistible to many shoppers.

Tiered discounts are a great way to clear inventory and encourage more product purchases from your customers. This can be especially effective for businesses with seasonal products, like surf shops selling out their winter stock in the fall or ski stores offering discounts on their aging equipment in the spring.

Creating a VIP discount for repeat buyers is an excellent way to show that you value your top customers and can provide them with a more exclusive experience. This type of loyalty promotion can increase customer lifetime value and strengthen your connection with your best customers. Givz, for example, gives their highest-spending customers a premium discount on a donation to the charity of their choice, demonstrating that they value and appreciate the loyalty of their top customers.

Discounts for Loyal Customers

Discounts that reward loyal customers can drive long-term customer retention and brand loyalty. However, they should be a part of an overall marketing strategy to avoid sacrificing profitability or changing the vision consumers have of your company.

A coupon code is a common form of customer-specific discounts. This pricing strategy allows retailers to offer a specific percentage off of products or services for a certain amount of time, while also capturing the email address and other details needed to build relationships with those who have purchased from you in the past.

When used well, this strategy can help you build an engaged list and increase the average order value per customer. However, if you overuse it, it can attract bargain hunters who only shop for deals and may not be committed to your brand in the long run.

Another way to offer discounts to loyal customers is to provide them with exclusive memberships and rewards programs that allow them to purchase products at regular price for a set amount of time. Zulily is one example of a brand that rewards repeat buyers with special prices to encourage them to continue making purchases with the retailer.

Similarly, brands can offer volume discounts that reward customers for purchasing items in bulk. For instance, Ujido offers a $6 off discount on a pack of 15 matcha energy packets to reward customers for increasing their purchase volume. This pricing strategy can encourage customer loyalty while also reducing inventory costs and increasing profit margins.

Some brands offer discounts based on location to help them reach more local shoppers and optimize their distribution. Givz is a great example of a business that provides shoppers with the ability to donate to a charity of their choice when they spend a certain amount at the retailer, which can strengthen the bond between customers and the brand and encourage them to make additional purchases in the future.

Seasonal discounts are promotions that are tied to specific events, seasons, or holidays. These are effective ways to boost sales during busy times of the year and generate buzz for your brand. Target, for example, makes headlines and builds customer loyalty with its annual back-to-school and holiday discounts.

Discounts for Referrals

If you’re looking to expand your customer base through referrals, discounts for new customers can be a great incentive. This type of discount generally gives both the referring and the new customer a cut, which can be especially effective in encouraging loyalty. This pricing strategy is a great way to attract more customers without putting additional pressure on your business’s bottom line.

Often used during seasonal events, this discount pricing strategy is designed to stimulate sales and increase traffic. For example, if you’re a retailer that sells footwear, marking down Crocs and sandals in preparation for winter will both encourage shoppers to buy more of your product while clearing out your inventory. This type of discount can also be useful if you’re trying to offload surplus stock or are introducing a new product and want to promote it to consumers.

Another popular discount pricing strategy is to offer tiers of discounts based on purchase volume. This can be particularly useful for business-to-business companies that have a lot of products at different price points. For example, a company that sells office supplies may offer a discount to customers who buy 20 or more boxes of 500-count paper. This type of discount pricing can also be used to entice new customers by providing them with access to higher discounts and rewards as they continue to buy more from the brand.

Sometimes referred to as prompt payment discounts, these types of discounts provide incentives for customers to pay their invoices on time. They are commonly offered by e-commerce businesses and can be an effective tool for reducing credit risk. For example, fitness and athleisure brand Fabletics offers a VIP membership program that allows customers to pay their monthly subscription in advance in exchange for first dibs on new merchandise, a discount on the next month’s bill, and other perks.

Before offering a discount, make sure that you have a clear idea of your goals and objectives for doing so. For instance, you may be trying to entice new customers, reward loyal ones, or close that one last big sale. Once you have a firm understanding of your business’s needs, leveraging discounting to achieve those goals should be relatively straightforward.