5 points to consider when optimizing your discount strategy for profitability.
Updated: Apr 21
Everyone loves a great bargain, but is it a profitable business decision? Giving too many discounts might indeed not be the way to grow your business - generic codes decrease price adoption and can hurt the brand. A number of business and marketing executives are openly against mass discounting. In September 2016 Elon Musk said in an email to Tesla’s staff: “There can never — and I mean never — be a discount on a new car coming out of the factory in pristine condition”.* It’s understandable - Tesla has a strong brand and the demand for its product exceeds production capacity. However, they still offer a $1000 Referral bonus and big rebates on test-drive cars. That means, they keep it exclusive and under control.
To take the example, you should personalize your special offers and be selective as to whom and when you give them out. First and foremost, create a thought-through promotional strategy. Below you can find a few ideas on how to optimize your discounting for customer profitability. It will help you grow your business without hurting the bottom line.
1. Acquisition & Activation - Promote a new market
Entering a New Market or Engaging the most efficient one. If you’re entering a new market for the first time, an online or offline discount campaign is a good way to get attention and increase the adoption of your product or service. To decrease the risk of abuse, however, important is to restrict the coupons to a specific goal or channel you have in mind - it can be to promote your business further in a high-performing area. Using geolocation or shipping data, you can offer discounts specific to zip codes, cities, and more. This tactic also works when you wish to push your customers to a new platform. For example, if you’ve invested a lot into a new mobile app, you can offer a coupon limited to be redeemed on mobile only to push app downloads. Keep in mind, that discounting through cross-promotion, affiliates, or influencer marketing can also be optimized - in such cases make sure you distribute unique coupons across your promoters and measure the long-term ROI of each of the channels.
2. Building Engagement - Reward loyal customers
Customer loyalty is not a destination, it's a journey - occasionally, you need to make your existing customers feel special, especially the most engaged users. From time to time, you can reward your customers with a discount or access code to special offers as a thank you for staying with you, eg. including it in the Customer Anniversary or Birthday campaign. If you have a loyalty card ( gamification program) it's always better to express your gratitude in form of additional points.
3. Referral - Let your fans invite their friends
Many companies in the growth stage are offering referral discounts in the hope that their current customers will bring new ones. The problem with that is, that they're giving this opportunity to ALL the users, often publicly shouting about the program. Such a tactic makes the business very vulnerable to referral abuse, enabling people who're not necessarily customers, to profit from a promotion. The solution for that is to offer a referral program to already loyal customers ( or at least satisfied customers who have already used/purchased the product ). The invitation-only promo will let you deepen the engagement with your brand evangelists and increase the chance to bring alike, high-value customers. Using Social Media monitoring tools, you can also scan for any Influencers talking about your product and offer them to share a special offer among their followers.
4. Churn Prevention - Win back lost, but valuable users
You might also test sending coupons to those users who have stopped purchasing in recent months, as a way of bringing them back into the sales funnel. It's a popular, however risky investment - it's uncertain whether the price was the churn factor. Therefore, very important is to interview the lost customer beforehand and make sure she gets a great service alongside the special offer. A great idea is to encourage customers with a discount to thank for their feedback. You might also want to restrict this offer to once per customer, as sending retargeting discounts periodically, might make your customers get used to coupons. To optimize it even further, segment the offer based on Customer-Lifetime-Value. The higher value of a customer, the more you can spend to win her back.
5. Leveraging the product lifecycle - discount the right inventory
If you have old inventory, it's important to get rid of it quickly. Instead of doing a general sale, you can use discounts to engage or access customers with lower LTV ( lifetime value) or simply, the bargain hunters. The way to do it is to customize your coupons to be valid only for specific products. This ensures that people can't get a blanket discount on their shopping cart. It would only be for the products you are driving them towards, which allows you to maintain a higher profit margin on all of your newer items. Using this approach, you can contact savings platforms & deal websites to promote the specific offers on their sites.
Couponing is not a sexy topic but you can use discounts in a smart way to work to your advantage. It's important to remember that if it comes to discounting - less is more. You don’t want to get into a situation where consumers always have access to discounts. Unless your business model is based on special offers, too many coupons might make your customers disengaged and lose a sense of urgency. In the end, discounts should support your profit, so always look at the long-term value of your customers to see if your promotional strategy works well.
Still, have questions? By analyzing your customer cohort, we can audit your current coupon strategy & help you to create a data-driven promotional campaign plan that addresses your needs, and bottlenecks. No, we won’t charge you for that. Shoot us an email at email@example.com with the subject: "Promotional Strategy". Image Credit: www.tesla.com