How to Make Profits by Giving Customers Discounts
As competition grows the only effective way to attract customers to your e-commerce website it seems, is by playing the price war. However, the leading question in all our minds is, “Can I really make profits by cutting down my prices?”
If you go about your discount, coupon or promo code strategy in the right way, the answer to the above question is without doubt – Yes you can!
Planning before Offering a Discount
Offering discounts, loyalty programs and better pricing on bulk purchases are common strategies that help businesses keep their stock on the move and also attract new customers and maintain sales targets when the season is low. However, before you blindly cut your sales price to half with the hope of bringing up your sales, it is recommended that you plan a little to make sure that your margins are maintained as the extra orders start coming in.
Your planning process must include the following considerations:
- What are your current profit margin, break-even point and markup?
- What is the best discount price you can offer without making a loss?
- Do you have a marketing plan ready that encourages customers and attracts inactive customers?
- Are you aware of what your competitors are offering and at what prices?
- What are your other options for promoting your sales?
- Do these options also involve reducing your price?
- For how long will you offer this discount?
- How often are you reviewing your figures to assess the sales figures?
The Relationship between Discounts and Sales Targets
Every time you change your sales price or markup on your products or services, it is important that you have a clear understanding on how this alteration will impact your profit margins and your sales targets. To be able to successfully introduce a sale without risking a loss involves having complete awareness of your gross margin, break-even figures, markup and how the discount will affect all of this.
Introducing Special Offers and Pricing Deals
If offering clear cut discounts is not working in your favor to drive sales, then you may want to consider other options. For instance, if the 10% off sale did not bring in more sales volumes, consider offering alternatives such as free shipping, free gift wrapping or other such value additions. Before you introduce any offer, it is important that you understand your target audience and factors that may attract them.
Bundle Stock or Packages
Using this up sell opportunity is a great way to encourage your audience to order more to acquire rewards with bundle pricing. This type of promotion works best when you are able to show your customer the advantage of complimentary products or services by buying them together at cheaper rates.
Quantity based Discounting
By offering a quantity based percentage or “buy X get Y free” you will be able to increase the chances of your customers purchases a set number of items. This will help you work towards improving your average order size and also move stock that may be required for clearance items. This strategy works best when the supplier offers a discount for orders that are larger.
In addition to this, popular discounting strategies that work involve providing value added offers. Here, without actually giving a discount, you can give your customer an added value to their purchases. While most value additions are priceless items that benefit buyers, businesses must keep in mind that while these offers are free, they demand significant time to provide the service.
With a clear understanding of your target audience, their expectations and key drivers you can design an effective discount strategy that ensures profits.