How to Discount in Retail: 5 Tips for Running Sales Without Killing Your Profits

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Discounting is one of the most popular (and arguably among the most effective) ways to drive sales. According to a study by Software Advice, a POS system research site, discounting is the top “pricing strategy for retailers across all sectors, used by 97 percent of survey respondents.”

However, as effective as they are, discounts can be a double-edged sword. While slashing prices certainly attracts customers, executing discounts the wrong way could end up killing your profits or enticing the wrong types of shoppers (i.e. those who’ll only buy from you when you lower your prices.)

That’s why if you’re looking to run sales or discounts at your store, it’s important to plan your promotions well and craft thoughtful offers to meet your objectives. Go through the pointers below for some tips and ideas on how to implement discounts correctly.

 

Define your objectives

Blindly implementing discounts is one of the biggest mistakes you can make as a retailer. Before running a sale or offering a hot new promo, see to it that you have a clearly defined purpose for doing so.

Are you doing it because you want to gain new customers or are you looking to engage existing ones? Do you want to lure in people who haven’t bought from you in a while? Are you looking to get rid of excess stock? These are just some of the questions you should answer when crafting your offers.

Different objectives call for different types of discounts. For example, if your purpose is customer acquisition, then you’ll probably want to implement more aggressive tactics such as loss leaders or store-wide sales, to attract the most number of people. On the other hand, if you’re looking to re-engage people who have purchased from you in the past, then you’ll want to add a personal touch to your offers and run customized deals. (More on these tactics below.) 

Clearly defining your purposes for discounting will enable you to make decisions on what products to put on sale, when to do it, and most important, how big of a discount to offer.

It’ll also help you measure the results of your campaigns, so you can figure out how to improve going forward.

 

Segment shoppers and tailor offers accordingly

Creating discounts or offers based on different customers’ preferences or purchase histories can greatly increase conversions. Take the time to segment your customer base so you can market and sell to them accordingly.

One way of doing this is to set up customer profiles. Create profiles outlining the price sensitivity and shopping habits of different customers and use them as tools to determine the kinds of discounts to offer each shopper type.

Below are some sample customer profiles that you can create:

discount profile table

Sending out tailored offers may sound tricky, but it’s actually quite doable if you have the right tools. Make use of a robust customer management system that gives you a history of what shoppers bought from you. That way, you’ll be able to easily see who’s buying what, and how much each customer has spent.

Vend tip

Are you a Vend user? Our customer management software makes it easy to build and manage customer lists, so you can view, sort, and group shoppers according to factors like purchase history, balance, and location.

 

Make sure the timing is right

When it comes to discounts and offers, timing can be just as important as relevance. Sending out deals at just the right time (i.e. when customers need them) will greatly increase your conversion rates.

This is why you also have to pay attention to when shoppers are buying from you. For instance, if you have a lot of customers who buy at the end of the month, then schedule your offers around that time.

Also remember that the question of when a customer looked at a product or bought something can provide insights into what they might buy next and when. For example, Blue Nile, an online jewelry retailer, times its wedding band emails based on its estimates on when customers got engaged.

See if you can do something similar in your business. Let’s say you sell baby clothing and merchandise, and a customer just bought some clothes for her three-month-old son. Using that data, you might be able to predict what she’ll need in six months or a year, and you can make relevant product recommendations or offers.

Also see if you can tap into mobile solutions to reach on-the-go consumers who happen to be looking for deals in your area. Remember that more and more people are using their phones to find and discover businesses, so see to it that your deals are visible to nearby mobile users.

One company that’s making it easier for shoppers to find nearby discounts is Offerbook, a mobile app that collects deals from sites like Groupon, LivingSocial, and Gilt, then delivers them to users in relevant locations.

Ankit Sehgal, Offerbook’s founder, says that well-timed deals—particularly discounts offered in real time—are the most effective. “It makes sense to do deals when there’s a need for them,” he said.

He added that based on the patterns they see from Offerbook users, it was clear that people liked getting real-time deals from establishments in the vicinity, and the chances of conversion are immensely higher when customers can easily view and redeem the deals  (i.e. when they don’t have to jump through too many hoops to gain the discount).

 

Be mindful of your margins

To ensure that you don’t give away too much or end up losing money with your discounts, set an “acceptable range of margin” for your products. That’s what Spreadshirt, a global platform for personalized clothing and accessories does when they implement discounts.

“We have an acceptable range of margin per product type that guides our percentage off type promotions, unless the goal is aggressive new customer acquisition,” shares Adam Lasky, Head of D2C Marketing North America.

When it comes to their steeper discounts, Adam says they’re hoping that “in the long run the customer lifetime value or cost of acquisition from that promotion will make up for a more aggressive promotion.”

Get creative with your discount strategy

Another way to offer deals without giving away too much or hurting your brand is to implement creative pricing and discount strategies. Here are some examples of what you can do:

Clever pricing

A great example of a brand that did this is eyewear merchant Rivet & Sway.  Rather than simply putting items on sale, the company implemented a pricing strategy wherein shoppers could purchase eyewear at $169, but were incentivized to buy additional pairs for $99.

This enabled Rivet & Sway to entice shoppers to buy without training them to wait around for deals.

Putting the spotlight on new items

Another company that was able to successfully revamp their deal strategy is apparel retail chain Express. In addition to running fewer sale events, the retailer started moving their sale items to the back of the store, to increase sales for their fashionable (but full priced) products at the front.

Doing so helped Express encourage customers to buy their new and full priced items, without necessarily excluding shoppers looking for deals.

Offering discounts to select consumer groups

You can also consider offering exclusive discounts to specific groups of consumers (ex. students, military, senior citizens etc.). According to Marci Hansen, CMO of eligibility verification solution SheerID, this strategy allows retailers to leverage discounts without hurting their margins or being defined as a discount brand.

“Strategically offering exclusive discounts instead of site-wide price reductions or coupon codes gives retailers more control over their margins and the growth of their core customer base,” said Marci. “By offering special discounts or perks to educators and members of the military community, marketers can attract new, loyal customers without diminishing their overall brand.”

“Existing customers don’t begrudge retailers who offer military, student, or educator discounts, the way that they do if a company offers new customer discounts. In fact, most consumers look favorably upon businesses that honor military service and value education,” she added.

 

Your turn

You don’t have to lose money or hurt your brand when you offer discounts. As we pointed out above, a creative and well-executed discount strategy with clear objectives can help you gain sales and attract the right types of customers.

Further reading

Need more insights? We’ve created a downloadable guide on how to make money discounting. Check it out here.

Are you implementing a winning discount strategy in your business? Tell us about it in the comments.

 

About Francesca Nicasio

Francesca Nicasio is Vend's Retail Expert and Content Strategist. She writes about trends, tips, and other cool things that enable retailers to increase sales, serve customers better, and be more awesome overall. She's also the author of Retail Survival of the Fittest, a free eBook to help retailers future-proof their stores. Connect with her on LinkedIn, Twitter, or Google+.