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Wherever you go online, there are brands fighting for your attention and luring you to make a purchase. Acquisition and retention are two of the most important challenges facing merchants, and costs for both are growing. To succeed, merchants must strike a balance between enticing new customers to make their first purchase, while also encouraging existing customers to return.
So, how do they do this? One of the most common strategies is discounting.
We’ve all been there; a 10% off code for signing up to a mailing list, $20 off if you refer a friend. In the short-term, this stands a good chance of boosting both acquisition and retention. However in the long-term, there’s an even stronger chance you’ll be doing more harm than good to your business.
There’s a very simple reason why discounting is so common in ecommerce – it’s easy to implement. It takes very little effort on the part of a merchant to create and distribute different discount codes.
That being said, this isn’t something that will work in the long-term for your store. When you break down the negative impact of discounting, it starts to look like a poor short-term strategy. Those introductory discounts are going to lead to a lot of one-off orders – many will take the incentive and simply move on to the next brand to offer them a discount. This audience of bargain-hunters won’t have any real affinity or attachment to your product or brand. This is going to pull down your retention rate, and make it much more difficult to build a strong loyal base of customers that will serve your business in the future.
Then there’s the impact on how people perceive your brand, products, and pricing. If a customer starts their relationship with your brand with a discount, that’s going to set their expectations moving forward for pricing. That discounted price remains the one they forever will value your products at and they’ll be less likely to want to pay full price making retention difficult without further discounting. This spirals into your brand being seen as a discount brand, and existing customers feeling left out if they’re not offered the same number of discounts as new customers.
So, let’s explore some alternatives.
Just because discounting isn’t always a great long-term solution, doesn’t mean that incentives aren’t something you should include in your strategy. You can include plenty of these, but you should do it on your own terms in a way that actually improves customer engagement and loyalty. What better way to do that than a loyalty program?
Taking the time to set up a program that will engage and incentivize your customers can result in big rewards for your retention rates. 52% of American consumers will join the loyalty program of brands they make frequent purchases from, and 79% say programs make them more likely to continue doing business with brands.
Rather than offering a discount straight away, offer it as something they can earn depending on their loyalty program status. You could use a points system, tiers, paid access – whatever works best for your business and customers. This prevents one-off orders focussed on discount redemption, and allows you to build a sustainable customer relationship and community around your brand. Setting up a tailored loyalty program that perfectly aligns with your brand and customers is made simple and fast with an integration like LoyaltyLion.
One of the difficulties with discounting is the uncertainty around how much of the order value you’ll end up giving away. A few dollars here and there doesn’t sound like much, but over time this will accumulate into a significant amount. This also scales depending on the total cart value of the customer using a discount – 10% on an order value of $50 might be fine, but 10% of a much larger order might start to make a negative impact.
An alternative to this is to utilize gift cards. These allow you to control exactly how much cash you commit to incentive strategies – you know it will always be $5 or $10 or however much you decide to offer rather than those variable amounts typical of percentage discounts. You can even combine this strategy with your loyalty program. This can improve the customer’s perception of a reward – instead of giving them money off an order, you’re actually gifting them cash to spend. Plus you’ll have the added bonus of promoting your gift cards so your most loyal customers are aware of them in the future.
Using an app such as Govalo to manage your gift cards, you can create gift cards and distribute them to your customers, as well as integrating it with email platforms like Klaviyo to really boost your retention strategy.
As we’ve already mentioned, part of the popularity of discounting is around its ease of implementation. It’s so easy to create a 10% off code, and add it to an automated email flow for new subscribers. However some incentives are even more popular and powerful.
Another popular promotion in ecommerce is free shipping, and for good reason – 90% of consumers say free shipping is their top incentive to shop online more. There is the obvious question of if we’re trying to get away from discounting eating into our revenue on orders, then surely free shipping can’t be the answer? Well, the option of free shipping actually encourages higher order values to the tune of around 30% more on average, and 93% of customers say they feel encouraged to buy more products if free shipping is available.
If you don’t want to offer a blanket free shipping policy, you can instead offer it above a certain spend threshold, or make it available for your most-loyal customers, which will encourage higher spending. If you want to make a push for acquisition or even retention, you can run a limited time offer of free shipping on all orders for new, existing, or all customers.
There is more beyond just shipping incentives too, and it all comes down to what your customers will best respond to. That might be free items, samples, exclusive launch access to new products, and so on. To determine what incentives excite your customers the most, run tests in different audience segments and channels using different perks and offers outside of discounts.
Most of the time when we discuss incentives, we’re talking about the customer getting something for free in exchange for placing an order. However, what about the customer giving something back?
While that may sound unusual, 86% of consumers say they’re likely to buy from purpose-driven companies and 71% of millennials say they’d pay more for a product if some of the proceeds go to charity. Cause marketing is growing in ecommerce, and can play a big role in creating customer loyalty and has the potential to increase AOV by as much as 30%.
Instead of a discount, offer customers the ability to donate to a charity of choice once they place their order, for example 10% of their order total goes to charity. You can select charities related to your products or story, which strengthens both your brand and community. Make use of technology apps like Givz, which makes it easy to offer charity donations at checkout for your customers and manage the handover of funds to your chosen charities.
Attracting new customers is tricky business, as is keeping them once they’ve made their first purchase. If you want to truly grow your business and avoid harming your brand long-term, then it’s time to ditch the discounts and start strategizing.