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Discounts and offers have been around since the beginning of retailing history. Giving the customer money off has always been seen as the ultimate marketing tool for increasing sales volume.  

To date, the web hasn’t changed this: price competition is at a historic high and the rise of deals sites has institutionalised discounts as an accepted part of online retailing practice.

The reason why discounts work is because price is a massive issue for consumers. In research we undertook into shopper’s attitudes, 35% of feedback from consumers was price related: 14% specifically about high prices and 8% about discounts.

The popularity of discounts is also clearly illustrated by the uptake of deals sites, with 60% of web shoppers subscribing to one or other of the services and spending a total of $3.6bn dollars via them in 2012 (BIA/Kelsey).

Discounts can also make sense on a financial basis. Rising traffic costs means that the cost of discounts can be balanced against the cost of traffic.

For example, in the average travel purchase a visitor may make around five visits before converting. Many of these visits may be from paid channels such as PPC, therefore it may make financial sense to offer a discount early on in the purchase cycle to avoid the subsequent marketing costs. 

Mobile will only make discounts more important. Increased mobile purchasing behaviour combined with the growing importance of local search will all combine to open a new discount market in time-sensitive, geographically based offers served via mobile.

The challenge for retailers is trying to use the value of the discount options on offer whilst maximising the margin opportunity from each customer.  

There are some situations where discounting is a no brainer. For example when you have excess stock in a hotel or from the latest fashion range, or when you’re trying to drive customer loyalty by securing that first time purchase.  

However, you don’t want to scatter gun your margin offers. In an ideal world, you only want to be discounting to those people that it will make a difference to and, each time, by the exact amount that will make that user convert.  

Discounts can have an immediate positive impact on your revenue but, if this comes at an unacceptably high margin cost, then the model falls down.

This balancing act is one of the hardest for a retailer to pull off, and there can be risks in trying to play the discounts game.

For example, deal affiliates such as the major voucher sites can often be the ‘last click’ in a purchase cycle, as bargain-savvy shoppers research a product and then purchase using a voucher as their last act.

This can lead retailers to undervalue earlier channels in the purchase process and thus overestimate the value of discounts as a sales driver. This anomaly graphically demonstrates the value of good attribution modelling and highlights the skewing nature of discounts.

The fact is that discounts should always be seen as the last resort, and ecommerce businesses should try and find smart ways to improve conversions without giving away margin via a deal.

For example:

  • Changes in customer experience to increase the sense of urgency (e.g. only two rooms left!)..
  • Target messaging (e.g. giving new visitors a sense of your business’ USPs).
  • Offer enhanced product information (e.g. sizing guides, rich product imagery etc).
  • Promote conversion driving content (e.g. reviews, ratings, live chat etc). 

There’s no doubt that discounts are a powerful tool, but they should be seen as the nuclear option, to be used only when the business logic is sound and the alternatives exhausted.

Instead, businesses should focus on understanding their customers and giving them the personalised service, content and tools that they need to convert.

Some of this might be discounts, but it should be offered in a way that doesn’t de-value the brand or reduce margin for short term revenue gain.

Ian McCaig

Published 13 May, 2013 by Ian McCaig

Ian McCaig is Founder at Qubit and a contributor to Econsultancy.

29 more posts from this author

Comments (5)

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Hamza, Marketing through Technology at BuzzHamza.com

...unless you're JC Penney.

over 3 years ago

Robert Durkin

Robert Durkin, Founder at FusePump (WPP)

"This balancing act is one of the hardest for a retailer to pull off, and there can be risks in trying to play the discounts game."

Excellent point - it is a risky game.

If you frequently offer discounts, customers start to expect or demand them, especially if there's a box during the checkout process which asks for a 'promotional code'.

Plenty of shoppers who see this will presume one is available and try to find one, even if they had intended to make the sale at full price all along!

over 3 years ago

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Deri Jones, CEO at SciVisum Ltd

Robert is right - theer's a debate worth having about the promotion Code box; in this context that discounts should be only a nuclear option.

There's also the angle of rewarding loyalty - should discounts focus on people's 2nd and later purchases? Which builds brand trust.

Whereas many marketers uses discounts as a hook to get new customers though - and even prevent existing customers benefiting from a new deal!

The pros and cons of that approach are worth a discussion.

over 3 years ago

Helen Southgate

Helen Southgate, UK Managing Director at affilinetSmall Business Multi-user

Whilst I agree that major voucher sites can often be the last click in a purchase cycle, this should not necessarily be considered a negative thing. Most affiliate partners are last click in the purchase cycle as this is how they are paid and they are experts in closing a sale. In reality voucher sites are only a small part of the marketing mix so I don’t think this is an area for concern. However, voucher sites and other affiliate sites also play a wider role in the purchase journey beyond last click, as well as playing a key role in getting your brand in the consumers mind and assisting in the research stages of the customer journey, which is particularly important when you have a number of competitors.

I am however a huge advocate of understanding activity beyond last click for all your digital marketing activity, as this offers a fuller understanding of the customer purchase journey or the ROI on your digital strategy. Only when you fully understand this can you make a decision on your digital marketing strategy and understand the value of discounting and discount sites.

I also don’t necessarily agree that discounts should be used when all other avenues are exhausted. Sometimes a discount may be necessary to get cut through in your media or compete with a competitor offering. It may also be an effective tool to drive more sales in a busy period or help keep sales at a healthy level in a quiet period. I’ve seen discounts used effectively to drive higher purchase values or drive sales of a particular product or service. It’s common sense that discounts should not be used all the time, but they should be used as both a tactical and strategic tool to drive higher orders and order values.

over 3 years ago

Avatar-blank-50x50

Kevin Edwards

There is an element of received wisdom in how people talk about vouchers and one of the conclusions in the article falls into this trap.

There is an assumption that because they are premised as sales 'closers', they only sit at the end of the purchase cycle and sweep away all before them.

This ignores two crucial elements: what the data says and also what major voucher portals are actually doing to engage their users.

First up the data. Much of our research, having looked at thousands of sales across a number of advertisers, typically shows that voucher sites are single affiliate interaction and are as likely to be overwritten by other channels as they are to overwrite. The data also shows a significant portion of sales are single channel interaction, thus indicating that these sites act as a significant driver of consumers who use them as a general shopping portal or first point of contact.

Secondly voucher sites offer multiple routes to market with consumers at differing stages of intent according to the channel they interact with. With the largest voucher site boasting an email database in the millions, it's not too much of a stretch to imagine they are powerful drivers of incremental sales, pushing strong offers weekly into your inbox featuring brands you may not have considered buying from at that point in time.

They also offer a powerful mobile presence through push notifications, geo targeted deals and in store redemptions. This is not to mention on-site tenancies, solus email opportunities and additional promotional tools.

The voucher space may look simple on paper but in practice it's complex without a straightforward account of how traffic and consumers behave.

over 3 years ago

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