We don’t like to discount. Do you?
There are very few e-commerce websites out there that don’t have seasonal lulls, and even fewer who are fortunate enough to not have to run promotions or marketing in order to drive sales.
But for the rest of the world quiet periods of low sales, seasonal trends or economic uncertainty are commonplace, with most merchants increasing sales by opting for flash sales, discounts or incentives such as free shipping and coupons.
Whilst these actions are highly likely to solve these problems, they only paper over the cracks and help in the short-term to drive sales, and hopefully, increase bottom-line figures. But what are the long-term problems these tactics can cause?
Constant discounting is dangerous
Everyone likes a bargain, which for slow-movers, expiring/out of season, and other products that need to be shifted quickly is perfectly understandable. But customers can easily become conditioned to buying a product at a discounted price, and for merchants who have repeat customers with a high LTV, this is a treacherous, one way street - it’s very easy to discount and lower a purchase price, but extremely difficult to increase prices to the level at which they were before, or higher.
And touching on LTV, if a customer can buy a product for less than normal, they will most likely capitalise on the opportunity and stock up...meaning that over a given period the same number of units will be purchased, but for less turnover and profit.
Seth Godin said it best: ‘Maybe the reason it seems that price is all your customers care about is that you haven’t given them anything else to care about’.
If merchants find themselves having to drive sales through discounts and savings, price is all their customers care about. Maybe the market they are targeting - whether by accident or not - is too price sensitive and factors such as service or quality are secondary. We will discuss target customers in another article, but marketing to price sensitive customers is tricky, as price is all the customer cares about, and is loyal to. It becomes a buyers market, and does not end well for the merchant.
Think up, not down
So, how can merchants drum up sales and orders during quiet periods? When discounting is a no, they need to come up with other, more creative promotions that increase value rather than reduce price.
One of the easiest ways is to add value - dangle a carrot in front on the customer. Don't discount. Find a way to add value to generate sales and interest.
Another thing customers love is a freebie - branded swag, unique or novelty items, or anything with a perceived value. By offering a free gift with each order placed over a particular period, such as weekend, the merchant is instilling urgency...but for a reward: a free gift. Alternatively, merchants can offer a free item on orders that have surpassed an order value threshold, which can help to increase the average order value for that period.
If customers can’t be swayed with a freebie - or if there isn’t a freebie to offer - merchants can upgrade the shipping service, such as next day delivery for the price of a standard or economy service. Again, by limiting the timeframe this would be valid for, merchants are instilling the urgency and hopefully seeing the orders convert. Free shipping is also an incentive, but as this is a saving it is a form of discounting (depending on the set-up, upgrading the delivery is not necessarily a discount as customers may still have to pay for delivery).
Finally, cross-selling is a good way of generating sales - buy product A and get product B for X% less. Obviously, the products need to be complementary and have a logical relationship, but rather than discount the product on the whole order, the customer must buy something at normal or full price in order to take advantage of the offer in the first place.
There are times when discounting is necessary - to shift products, generate sales in desperation, or to compete in the short-term with new or existing competitors - but successful ecommerce websites need to ensure they do not inadvertently gain a reputation for promotions, coupons and discounting.
Businesses who find themselves discounting, or having to constantly discount, need to look at the bigger picture and find a solution to solve the problem of discounting. This could be down to the fact that the market is that way inclined, the 4ps of marketing aren’t optimised, or the product just doesn’t command the price the merchant believes it should. Ultimately the market dictates the price.
If you find yourself in this situation, take a step back and look at the reason why you are having to discount, and what the effects are on your bottom line.
When the only way to generate decent sales is to discount, the system is broken.
Promotions and incentives are fantastic ways to generate sales, loyalty and new customers, but they are quite easily underestimated or mismanaged. They should come with a warning - manage with care.
What strategies have you found to have worked well for you? Do you discount on your website? Let us know your thoughts.