This article is an extension from a previous article on the use of discounts to maximize profits. In it, we examine the advantages and concerns of discounting and address the areas to look out for when considering to do so.

It’s a light read, and I highly recommend that you take a look at part one before continuing on as it will give you a better overview and mindset as we begin to examine the different strategies:

Pros & Cons of Discounts: Is Discounting Right for Your Business?

Previously, we’ve alluded to the importance of knowing your focus and the ‘issue’ that you are trying to address. Business in its essence is a relationship between the company offerings and its customers. Understanding these two main components can help you better assess and implement the right tactic.

Customer Focus

Customer focus looks into the target group and the desired behavioral outcome.

Simply put, it is knowing the change that you want to see in your target audience. The process involves identifying their current behavior and establishing the result behavior that you would like to observe.

An example would be to gain new clients. Your target audience may be early on in the awareness ladder and not really know about your brand. So here the target is the ‘unaware audience’. While the desired outcome is to increase awareness and hopefully converting them into your client base.

The behavioral outcome doesn’t have to be a change per se. It can also be a reinforcement on existing behavior. Showing a sign of recognition by rewarding VIP clients with a discount or membership benefit is an example of this, strengthening the original act of buying.

1. Behavioral Reinforcement

Membership/ loyalty program

Membership discount is a well documented tactic. The strategy positively reinforces customers to continue buying. Loyalty programs work to further secure relationships as customers are treated exclusively and feel recognized for their support.

Value add offer

Value add discount can mean a whole range of things. Essentially, as the customer I am being offered a bonus for having supported the business. Some companies offer free delivery while others offer a small gift.

What is unique about these value adding discounts is that they can be small, but it keeps your brand top of mind and relevant. A small gift or sample of something that I would otherwise not care for expands the customer experience. Likewise, a hassle-free delivery service is something that can further motivate the customer to choose what you have to offer over an alternative.

Quantity buys

Many times, bulk and bundled discounts are used in conjunction with value adding offers. On top of rewarding customers who buy a lot, it encourages regular clients to buy even more. Think about it, if you’re told that you can get free delivery by spending a few more dollars, wouldn’t you also take another look to see what to add to your cart?

2. Behavioral Conversion

Curing an abandoned cart

Have you ever entered a store wanting to buy something just to come out empty handed? Well this phenomenon is also well documented in online stores. In a study, they found that an average of 68.81% users abandon cart mid-browsing (http://baymard.com/lists/cart-abandonment-rate).

This can be a change of mind due to dissatisfaction over the checkout process, because they would like more time to make their decision, to an array of reasons. But by offering a discount (say 10% off of their next purchase) when reminding them of their abandoned cart you in turn motivate them to finish the sale and even encourage them into making another purchase in the future.

First timer marketing

Indeed, with so many choices to choose from these days we are instead plagued with indecisiveness. So by offering a first time discount, you are more likely to push a potential customer over the edge and choose your product/ service over an alternative.

Exit intent pop up

Exit intent discounts is more of an algorithm that informs your customers just as they are about to leave. The tactic applies to online stores. By using a pop-up discount that appears before they exit your eCommerce you increase the chance of the user staying on your site.

Brand advocate/ referral discount

This discount applies to people who are active advocates of your brand. It taps into the social network of your existing customer base. By offering a discount to every referral, you are encouraging word of mouth from believers of your brand.

KOL endorsement/ Joint venture discount

When you want to acquire new customers, it is a good idea to approach another partner that already has a known following which aligns with your ‘Ideal Customer Profile’. By partnering up with them and offering their followers with an exclusive discount you benefit both parties by reinforcing their members while gaining greater awareness and new clients.

Subscription/ Social media engagement

Giving a discount to people who are willing to engage with your brand, either by subscription or by engagement over social media, you open up a portal to future exchanges. Not only does this help build your CSM, when done successfully over social media, it also casts the net to an even wider audience.

Product Focus

While customer focus looks at the greater scale, product focus helps you identify individual items to be used in your discounting strategy. In an effective campaign, tactics should be applied depending on the stage of the the true value of the product and the its stage within the product-life-cycle.

For this product specific approach, there are three main causes for discounting.

  • There is a lowering demand on your product, on decline
  • People are unaware of your product
  • Your product is soon becoming outdated

1. Product in Decline

Your product is more valuable when you have a monopoly or have little competition. But as competition builds up, the need for your product is diluted. This is when you may have to adjust the pricing to keep your product relevant.

But as mentioned in the previous article, when customers are offered a discounted product they can sometimes perceive the product as having less value. Then what can you do?

In this case, you can create an occasion (reason) for which to justify your discount, hiding the fact that it may not have been selling. You know, events such as anniversary sales and winter sports (you can even be creative with the themes) week, they help explain in the client's mind for the lowered price.

And since the discount is only offered for a limited period (by which it returns to its original price) creating urgency and interest, you may even find that the tactic worked to re-energize the demand for your product

2. Initial Awareness Marketing

In most occasions, when you initially launch a product there is little awareness. Specifically when your product is so novel that your target clients don't even realize the need for your product. To gain traction, it can be helpful to offer a small discount on that particular product and start building consciousness and appreciation.

Such discounts are used as a marketing scheme to get the ball rolling. Like offering 30%off to the first 50 customers. They are effective in building up a hype and work especially well when you have a strong enough product that is able to follow-through.

3. Clearing Out Old Stock

Some products have a known or predictable timeline while others just seem to fade into the background. Food and perishables for example are literally done for once they expire and cannot be sold after that. So before it does, it is sometimes a good idea to get rid of old stock by offering it at a lowered price.

For industries that are sensitive to season(fashion for instance), customers know that they are getting a discount for something that is less valuable.

Of course, how much you discount or if at all should also be a consideration alongside your brand strategy. Perhaps you prize your brand in being a high end luxury and would rather make the loss than to offer your products at a discounted price (albeit last season).

Focused Strategy = Smart Business

Though I have categorized the tactics under different focuses but in reality the best strategy should take both schools of practice into account.

The tactics are there to help you identify ways that work with your business model. The idea is that they would inspire you to create more effective schemes relevant to your brand.

At the end of the day, the best tactic is one that is backed by a secure foundation, namely your product.

As Hugh Dancy (Luke Brandon from Shopaholic) puts it best:

"Cost and worth are very different things".

A good understanding of its true worth is half the strategy. Rather than relying on discounting to sell your product, it should be used as an amplifier.

Lastly, in order to further magnify your campaign, remember to incite a sense of desire and urgency. Either through setting barriers to entry (limiting the amount of people who can get a discount) or by setting a time limit and hack into people’s fear of missing out.