Creating a successful long-term discounting strategy

As seen in March 2018 Issue of Giftware News Magazine:

Often, when retailers are looking to move items or make a quick infusion of sales to boost a slow month, they look to discounting. While effective in the short term – discounting without a long-term strategy or plan can end up hurting more than helping.

There are ways to ensure that your discount strategy (a very necessary part of running a retail business) benefits you, is financially responsible and (of course) makes your customers happy and increases loyalty and retention.

1. Set clear and upfront objectives to ensure your planned tactics align
2. Identify the tactics and target customers
3. Understand the margins and metrics to evaluate your strategy to ensure it is working for you

Define your objectives:
Defining your goal will set the stage for what type of discounting strategy will be most effective for you – and ensure that you’re not giving away more than you need to and losing valuable margin to customers that would have bought from you anyway. Here are some common goals:

1. Move older inventory
2. Increase customer loyalty/repeat customers
3. New customer acquisition
4. Increase overall sales

Choose your discount tactics to support your objective:
Once defining a clear goal, it is time to clearly select and outline the discount sales strategy that supports it. You may find yourself combining discounting strategies together to support one goal, or running two discounting strategies simultaneously to separate customer groups. Here are some alternatives to straight price slashing discounts that help build customer satisfaction and protect your margin:

1. Buy More, Save More – offering a volume discount is a way to clear space and also increase the total units per transaction – while controlling margins instead of offering a deep discount per unit.
2. Events – holding strategically timed events in seasons where your customers are already in a “buying mindset” can increase traffic and engagement – rather than offering deep discounts that may erode product value and attract bargain hunters vs. loyal customers, consider offering value-add services for a discount or free during this time (gift wrapping, free greeting card with purchases $50 or more, free shipping (if ecommerce) etc).
3. Bundled Discounts – capitalizing on popular and fast-selling items you can bundle a related yet slower moving item with it and offer a “bundled discount” (ie. Buy a knit scarf and receive a pair of knit mittens for 50% off!) customers hate to leave a deal on the table – and you’re supplementing your discount with a full price item in the transaction
4. Buy One, Get One Free – one of the most effective ways to move inventory and still sell items at full margin.
5. Free Gift with Purchase – everyone loves getting something for free – and this allows you to control the item selection you are offering as a free gift (this most best used for items you’re trying to clear quickly). Keep margins healthy by setting a spend requirement or multiple spend levels to receive a higher perceived value gift to help boost average ticket.

Evaluate profitability and success:
Usually, this is the part of the discounting strategy that falls to the wayside. Retailers get caught up in the planning, promotion and execution of a sale and when customers and coming through the door and the sales are coming in – it is easy to say “It’s working!”.

The truth is, without analysis and the math behind conversions and margin, you’re not seeing the full story. To ensure that you are implementing financially responsible (long-term) discounting habits it is important to consider the following during and after your promotions:

1. The average cost of a new customer – when you identify a first time customer, enticed by a sale, ensure that you are employing product recommendations and upselling full price items or services to increase the margin of the ticket.
2. Margin
– understanding the balance of sacrificing margin on some items but upselling and being strategic on balancing discounts/giveaways with full margin items. This can also be controlled by ensuring you are spending your marketing dollars effectively – social advertising is a very effective and low cost way to reach a highly targeted audience – ensuring your dollars are working most effectively for you.
3. Sales Volume Goals
 – this means looking at metrics like average sales dollars per transaction and also average units per transactions and deciding on what these targets are for your business.

Being strategic for the long-term and focusing on creating long lasting customers vs. in the moment bargain based transactions will always serve your brand well. Taking advantage of your existing social channels and strategic community partnerships to spread awareness of your tactics are great ways to help keep margins protected with low promotion costs and grow your customer base organically.

Questions? Our team of product and retail sales experts can help! Call 866.295.2849.

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