The Discount Dilemma: How Low Should You Go?

Among dozens of considerations merchants of all type need to take to heart, one of the most impactful is offering reduced pricing either as part of a sale even to all or even to selected loyal customers. This has become a problem for many ecommerce vendors, especially. Discounts are well known to be magnets for new and existing buyers; in fact, for online commerce, they are a driving force in the skyrocketing rate of revenues year after year.

For larger e-sellers, discounts are a staple and a primary marketing tool. Giants such as Amazon use them to produce maximum revenues on a marginal basis, meaning they may profit more on the sheer number of sales, even if they take a loss on each individual transaction.
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But when is and is not a good time to slash prices? Here are some important factors to evaluate, broken into two categories -- advantages and disadvantages:


The Yes Effect, or why offering sale prices is a great idea:

1. AOV, or Average Order Value
   How much revenue are you generating for each customer on checkout? This figure offers a useful tool for overall assessment on the typical sale. If you bundle a variety of products together, it helps generate sales for categories that are experiencing a dip in revenues. Ecommerce big players adopt this strategy frequently.
   

2. Long-term loyalty discounts
   Retain long-time or just somewhat regular customers by rewarding their repeat purchases with discounts. This is on balance a good way to encourage continued loyalty. And it’s not limited to product discounts. Also consider perks such as “Buy one; get one half-off” or “Receive a logo T-shirt with each $50 purchase.”
   

3. Kickstarting a client base
   Offering discounts right off the bat is a great way to look attractive to new buyers. Provided you are in a position to follow through, benefits such as free shipping are tried-and-true methods of luring up to 70 percent of shoppers who are first-time visitors.
   
   

The No Effect, or why sales pricing may backfire:

1. More harm than good?
   Some e-tail analysts say that regular deep discounting can be a self-inflicted fatal wound when customers begin to suspect they are a false representation of your usual prices. Overdoing discounts is a pattern seen in jewelry stores offering half-off gold chain sales and never change that policy over a period of years, for example.
   

2. Stay in the black
   Profit margins suffer when an item is discounted too heavily, as customers may expect that price to hold over time. If you continue it, your bottom line suffers. If you don’t, buyers may look elsewhere.
   

3. Offer good stuff
   Quality control changes everything. If your products don’t meet the standards buyers come to expect, they will see the discount as a manipulative tool to peddle inferior goods. This is especially true with respect to products offered with no warranties.
   

The basic points to be considered in contemplating a regular discount program require a careful study into your inventory, your current profit figures, your reputation going into the program, and whether you feel confident that it’s a positive business model that will serve you years down the road. Proceed with caution, but don’t be shy about proceeding if it all adds up.