Everybody LOVES a sale! After all, who doesn’t get a rush out of saving money on something they’ve been wanting? Sales are great for consumers, but, for companies, constantly discounting your product, especially in the eCommerce World, can end up being bad for your brand (and bottom line) long-term.
In this blog, I’ll be referencing information gleaned from an article from TheGood.com called “Why Discounting is Bad for Your Brand (and What to Do Instead)” As the article states, “…discounting is all over eCommerce because it’s the EASY button…not because it’s the best way to convert customers.” Discounts are empty calories, and sooner or later, those empty calories catch up to you and damage your company’s long-term financial health (and even your brand image). These ‘empty calorie’ discounts are convenient; they can be up and running in minutes in some cases. They often drive a short-term boost in conversion rates and sales, and who isn’t happy when the revenue chart gets a spike? But they’re addictive and come with other long-term side effects that you might not be considering in the short-term.
Financially, discounts drain your margins and reduce your total revenue. The thegood.com piece referenced Patrick Campbell’s data from Profitwell, which found that eCommerce brands that offer high discounts at purchase correlate with lower customer lifetime value, lower satisfaction scores and higher revenue churn. In contrast, offering a gift with purchase (at regular product pricing) correlated with higher lifetime value compared to percentage discounts.
Constant discounts train potential customers to expect, and wait for, a steep discount. Put yourself in the seat of the consumer because we all are at one time or another. For arguments’ sake, let me be that consumer, who has a, let’s call it a “Joe’s Department Store” credit card. I don’t shop Joe’s super often, but there are times that I consider shopping at Joe’s more often than other times…can you guess when? It’s when I get the postcard flyer with the peel-off sticker that shows a 30% discount on my purchase when I visit (and $10 Joe Cash for every $50 spent!). If I get one that is 15% or 20%, I evaluate what I need and when I need it. If it’s a want and not an absolute need, you can bet MY bottom dollar, Joe’s won’t see me until I get a 30%’er. They’ve desensitized me to, as the article calls it, ‘the thrill of the deal’. I’ve been trained by that company to wait. But wait, they just did it again. Twice in the last 3 months, I got an email, offering a 40% discount that weekend only. It worked, I shopped that Sunday afternoon, and saved a nice chunk of change. Now, guess who’s not going to be so motivated to shop with a 30% discount anymore? Would you? Discounts work the first time, but when they become commonplace, tied with countdown clock expiration times that don’t expire, and other ‘tricks’, etc., you’re creating fake urgency, and that erodes consumer trust, calls to mind your business integrity and can damage your reputation. That’s all not good.
Another side-effect that constant discounts create is attracting customers that are less than ideal. Discounts attract the ‘Bargain Hunter’ crowd, whose mantra is “No discount, no purchase”. These customers are less profitable than, say, the ‘Loyal Crowd’ that buy on brand recognition. Training customers to expect discounts fast-tracks your company’s transition into the perception that you’re a ‘deal buster’ brand, which customers view in the mindset of ‘this product isn’t really worth full price’.
Discounts come with long-term financial impact for those in competitive situations. For instance, you do a 10% discount. The competition does 15%. And so on and so forth…it’s a race to the bottom. A discount is a short term fix….think of them as a business band-aid…the band-aid doesn’t cure the wound but it does help stop the bleeding. If customers are going elsewhere because of poor traffic quality, bad copywriting, poor website layout or lack of social proof, using discounts, a.k.a. the ‘band-aid’, can save you from losing some of those bleeding bucks. But you’ll never stop bleeding until you fix the problem by addressing the traffic quality, copywriting, website layout and getting great testimonials, reviews, endorsements, etc. (aka ‘social proof’) from satisfied customers proving product value above cost.
But let’s not completely throw the discount-baby-out-with-the-bathwater, because there are a few instances where discounts work and brand impact is minimal or non-existent (the kind you want!). If the discount is on the initial sale to secure a high-value lifetime customer (think of a recurring purchased product, like Dollar Shave Club) a breakeven sale can be worth it because you’ll more than make up for it with repeat business purchases long-term. The second instance where discounts are worthwhile is if they are truly infrequent. Think Black Friday, and ONLY Black Friday. If you have genuine urgency (which comes from discounts happening once or twice a year) your customers (or potential customers) aren’t trained to wait for a deal.
Now the question becomes, if you’re addicted to the discount game, how can you get clean? The TheGood.com article suggests a few tactics you can pivot toward instead of quitting discounting cold turkey:
- Value-Based Promotions. Instead of discounts, offer a gift with purchase. Or, for example, if you typically discount one item from $8 to $6 and still make a profit, do a ‘Buy one, get one half price’ deal instead. You’ll take in $12 and sell two items at $6 each instead of one. The idea is to add perceived customer value, not subtract a perception of quality through a lowered price.
- Offer Free Shipping. In 2020, 50% of shoppers cited ‘extra costs are too high’ as a reason they abandoned their online cart. Those who offered free shipping saw higher conversions. See how Amazon sets the pricing threshold and gets people to spend more just so they can spend less on shipping? It’s a consumer mind-game they’re quite adept at winning.
- Offer Free Returns. Offering this option eases customer fear of ‘what if this doesn’t work out?’ Fear is paralyzing, and keeps the wallet closed, so taking fear off the table immediately is vital.
- Use Loyalty Programs. A Wirecard survey showed 92% of consumers can be swayed by rewards some or all of the time. It’s also great for database building, rewarding high-value lifetime customers, and creating new ones. Even the Bargain Hunters like Loyalty Programs, and their money is still green.
A few closing thoughts: Discounting is popular because it’s easy. Get creative with incentives and lead with value, not price, to avoid discounting, which can devalue your brand and product perception over time. This will strengthen your brand, while utilizing creative promotions will improve your margins and have you outperforming your competition without slashing prices. Need help with your eCommerce selling strategies and creative marketing? Give us a call and let’s work together to achieve the success you deserve!
– Bruce Thiem, CMOco Director of Integrated Media