Black Friday, Cyber Monday, Singles Day (11.11), Christmas Sales, Great Singapore Sale, Diwali Sale, Lunar New Year Sale and the list of “sale events” happening over the course of the year can go on….
All businesses, both ecommerce and the brick and mortar ones undertake periodic “Sales and Promotions” with the objective of bringing in more customers and increasing revenue. Marking down prices of products also helps in moving inventories that they might be wanting to clear.
The word “Discount” is music to the ears of the buyer. Who would not want to check out what’s on “offer” at the store to grab a deal at a price less than than the “usual”?
But what about the seller? Is he as excited to see lower margins and a drop in profitability in an endeavour to bring in more customers and revenues?
It’s all about striking the right balance!
The smart strategy is to participate in the sale (to take advantage of its benefits of higher traffic and turnover) and still stay profitable.
Read on to learn how to go about it.
Some Smart Discounting Strategies To Consider
Know your Margins to Design the Best Offer
Even before planning to run a “Sale”, the merchant needs to know all the margins associated with the business. What is the Gross Margin? What is the markup? And what are the Fixed Costs that must be covered to Breakeven?
The knowledge of such figures will allow him to calculate the best discount price and the extent of price adjustments he could make to successfully run the sale and reap its benefits without making a loss.
Use Segmented Discounting
A “Sale” does not necessarily imply that every product at the store is selling for less! The “offers” need to be cleverly designed, as they are only meant to lure the customer to your store.
Discounting the better known branded products is a smart strategy to draw in customers while keeping less-coveted products at full price. This helps in maintaining the overall profitability of the business.
Know what to put on Sale
Being selective with the items you put on sale protects margins for your best merchandise. There needs to be a well defined plan on what to offer on sale and for that the merchant should keep a close watch on product sales trends. Offering discounts on products towards the end of their life cycles help attract shoppers, clear old stocks and grow revenue without affecting margins adversely.
Using Predictive Analytics tools available in the market can help take the guesswork out and provide directions to the merchant on what and when to markdown. This helps in better inventory management by making the necessary price adjustments for slow moving products without unnecessarily reducing the price of products that customers are willing to pay full price for.
Offer Upsells to Increase Profitability
Understanding your customers’ profile and their needs is critical for designing any smart discount strategy. This will help you to suggest them to acquire complementary products or services (as a bundle) at a discounted price. Buyers like the reduced prices while you, the seller can reap the benefits of a higher average order value of transactions.
Reach out to Existing Customers
The ultimate goal of any sale is to grow revenue. So, rather than spending precious marketing dollars on new customer acquisition, it sometimes makes more sense to offer loyalty discounts to existing customers. These buyers are already familiar with your product and brand and giving them targeted offers and discounts to get them shopping with you more often might be a smarter option in terms of profitability.
Most customers love receiving freebies. So offering a free product with every purchase during the sales season is also an excellent idea to increase traffic to the store. This also helps move inventory and make way for new stocks.
Provide Value Rather than Pricing Discounts
In fact, instead of focusing on price alone to boost revenues, it also makes sense to offer deals that don’t necessarily involve discounted pricing. Your store could offer “quality guarantees” for your products (for example) which helps increase the perceived value of your product. Other “value-added” services like gift-wrapping or free shipping can also have an impact on the number and value of transactions.
Another effective way to grow the bottom line even in the midst of a sale event is to offer conditional free shipping associated with a minimum transaction value. It is common for shoppers to get lured by such promotions and add items to the cart just to avail the offer by reaching the minimum order value. The merchant benefits from the increased average order value without compromising too much of his profits.
Offer Discounts Only where Necessary
A good amount of planning needs to be done to encourage and entice new and repeat customers to buy and understanding your target customer helps devise the right marketing strategy for an upcoming sale. For eg. Studies reveal that millennials are less discount oriented than baby boomer customers. So focusing on your target market and marketing through the right channels could benefit your business and boost your profit margin.
Offering discounts to shoppers who have put items into their cart and then abandoned them midway is a great way to recover some of that lost revenue and add to your profitability.
Have fewer but more ‘Strategic’ Sales
A “Sale” is a wonderful opportunity to move stocks and attract new customers especially in slow sales periods but too much of anything is not necessarily good. The numerous sales happening year-round have in some ways reduced the novelty and effectiveness of the event. Studies now show that customers have gotten so used to buying discounted items that they are often unwilling to buy usual priced items.
To keep up the urgency among shoppers “sales” should be offered for limited time periods. Prolonged discounting of products or even having such promotional events frequently might help to raise revenues in the short term, but may actually be detrimental for your brand image in the longer run.
While the objective and focus of offering discounts are growing revenue and sales, merchants need to strike the balance by adopting smart discounting strategies to ensure that such an exercise would actually benefit the business rather than impact his profitability. The merchants need to –
- Have knowledge of margins and breakeven numbers needed to devise attractive offers without running into losses
- Know which items to offer on sale
- Reduce the frequency of sale events to make them more attractive
- Reward loyal customers by sending them targeted offers rather than incurring marketing costs of new customer acquisition helps restore profitability
You could also check out following related blogs on pricing and selling online