Discounts and deals. These words bring up different reactions depending on who you ask. If you’re a consumer, these terms will likely generate excitement. You’ll perk up, and you’ll want to check out what the store has to offer.
But if you’re a retailer, you probably won’t get too excited. Sure, putting products on sale could generate traffic and customers, but it also lowers profit margins. And running sales too often may diminish your brand and attract shoppers who never want to pay full price for anything.
To avoid this, retailers must be smart about their discount strategies. Contrary to what some might think, it’s possible to run sales while maintaining a healthy profit margin and brand image. Take a look at the ideas below, and see if you can apply them to your business.
1. Reward profitable customers instead of deal-hunters.
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Rather than sending offers to deal-hunters, determine who your best customers are -- like your top spenders and frequent shoppers -- and send them targeted offers. Doing so not only maximizes profitability but also helps increase loyalty among the shoppers who matter most.
If you’re planning to run a sale, go through your customer database first, and offer discounts to those who are likely to spend more. It’s also a good idea to analyze the types of customers who come through different marketing channels. From there, you could determine what offers to craft and how to promote them.
“Understanding customer lifetime value per marketing vehicle helps retailers craft the right offers while ensuring that they’re catering to customers who will keep purchasing and hopefully spend incremental dollars, says Antonella Pisani, founder of OfficialCouponCode.com
“In other words, it’s best for merchants to offer deals using marketing channels that attract customers who come back through free or cheap channels such as organic search, email, or brand keywords.”
2. Don't put your flagship products on sale.
Avoid discounting your flagship or most desired products. Being selective with the items you put on sale protects margins for your best merchandise. It also elevates your top products so shoppers won’t see you as a deal-centric brand.
Thom O'Leary, President at Fixer Group Consulting, says that keeping specific items at full price enables retailers to continue driving revenue through sales without diminishing brand value. “Some online stores will run tons of sales, but never on their flagship items. They'll even make it clear that those items are never on sale, or only on sale once per year. This is typically done on their most desirable or best-known items.”
He continues, “My client, SCOTTeVEST, does this. Their flagship vests almost never go on sale, and the strategy has worked out well for them.”
3. Avoid falling into a discount pattern.
Being predictable with when and how you run sales trains customers to wait for deals. One retailer that learned this the hard way is Bed Bath & Beyond. The home furnishings retailer got a little aggressive with their coupon strategy, mailing out tons of "20% off" coupons on a regular basis.
And while the effort did drive sales, it also lowered profits for the retailer. Last year, Bed Bath & Beyond made retail news when it announced on its Q3 earnings call that despite revenues increasing 1.7 percent, profits were down 10 percent, mostly due to its coupon-happy strategy.
Don’t let your company suffer the same fate. If you’re going to run sales, keep shoppers guessing via sporadic and short-term promotions. Or better yet, be more targeted with the promotions you’re putting out there. Segment your top customers then send them an unexpected offer such as exclusive access to a flash sale or a generous coupon. You’ll reap the rewards of an uptick in sales without training shoppers to wait around for a deal.
4. Offer conditional free shipping.
Have you considered offering free shipping? You should. A ComScore study found that 58 percent of shoppers purchased more items to qualify for free shipping, and 83 percent don’t mind waiting for a couple of days for delivery if shipping is free.
Clearly, free shipping can drive ecommerce purchases. Shipping incentives can increase average order value and -- if implemented correctly -- could protect your margins at the same time. That said, you have to be smart with how you structure the offer. Rather than offering the deal to everyone who buys from you, implement specific conditions for deal redemption.
For example, you could set a minimum order value before shoppers could redeem the deal. Another approach would be to offer free shipping for qualifying items. Some retailers offer free shipping for just a limited time. The right free shipping approach depends on your business. If you’re selling small items that are easy to pack, then you can probably offer free shipping at a lower spending threshold than a retailer that sells heavier products.
Be sure to study your shipping costs when crafting your deal. Remember, the key is to create an enticing offer without killing your profit margins.
5. Implement promotions that add value.
Deals aren’t only about discounts. Consider running promotions in which you add value to the sale instead of slashing product prices. For instance, you could offer a free product with every purchase. This is an excellent way to move inventory that you’re unable to sell. You could also add value through personalization. If you’re selling jewelry, for instance, why not throw in a free inscription?
Think about why your customers are buying a particular product. What do they want to do with it? Is there anything you could offer that would complement the item or would help customers get the most out of it? Find the answers to these questions, and use them to craft your value-added offer.
Your brand image and profit margins don’t have to take a hit every time you run a sale. By offering data-backed and well-thought out deals, you can effectively attract customers, drive sales and maintain decent profits at the same time.