Discount Pricing Strategies Online Stores Should Consider

Deals and discounts generally delight and excite customers.

A 2012 research commissioned by Coupons.com and led by Dr. Paul J. Zak, a professor of Neuroeconomics at Claremont Graduate University, showed that coupons make people happy. The study revealed that those who received a $10 voucher were 11% happier compared to those who did not.

Delighting customers shouldn’t come at the expense of your bottom line, however. You need to create a win-win scenario where customers are happy and you increase your conversions and profits.

Here are some discount pricing strategies to think about:

1. Don’t offer discounts regularly

Offering discounts on a regular basis can do more harm than good to your business, as this tends to train customers to wait for discounts and be unwilling to pay the full price. By giving discounts regularly, you run the risk of negating the scarcity principle and loss aversion bias. These two create a sense of urgency among customers, so negating them will make promotions less effective.

Be selective with when and to whom you give the discounts. You can consider offering discounts to do one of the following:

Get new visitors into your sales funnel

Funnel in first time visitors by employing the reciprocity principle. You can offer them a discount in exchange for their e-mail address to drive visitors deeper into the sales funnel.

Carefully think about how you employ this tactic.

Most sites automatically load an entry popup with the signup discount before visitors have a chance to process what’s on the site. Bloomingdales.com, for instance, immediately shows this popup once the visitor lands on the homepage:

Weigh the pros and cons of an entry popup for your site. Entry popups may get people to sign up to your newsletter, but they may also frustrate users.

An alternative to launching an entry popup is to use an exit-intent popup – trigger the popup as the user is moving their cursor out of the active browser window.

Done correctly, offering discounts to get new subscribers can ensure that you have a healthy marketable contacts database without frustrating users.

Build a relationship with existing customers

Smart companies know that focusing on customer retention, as opposed to customer acquisition, is key to success. This is because attracting a new customer costs five times more than retaining an existing one.

It’s important to gain your existing customers’ loyalty, so you reduce the costs of attracting new prospects.

One way to build a relationship with your existing customers is by sending them coupons. A birthday discount coupon sent via e-mail, for example, not only cultivates goodwill, it also ultimately gives the customer a reason to shop with you again:

Reward referrals

You can also incentivize customers with discounts through a referral program.

This will require the company to spend, but the results can be worth it. A referral program leverages people’s trust in people they know (i.e. your existing customers) to beef up your new customer pipeline.

It can also influence customer retention, as it turns regular customers into brand advocates. This, in turn, can increase your customer lifetime value. And because referred customers tend to spend more than customers acquired through other channels, referral marketing is something you should consider for your business.

Klean Kanteen, for example, tries to get website visitors to spread awareness about the brand by offering a 25% discount to both the referrer and their friends:

Push new platform

If a mobile app makes sense for your business, you can get more people to download the app by offering an incentive. That way, your brand can have a presence on a user’s mobile device, from the company logo on the app icon to occasional push notifications.

Zalora, an e-commerce site, for instance, nudges desktop customers to download their mobile app by offering a 25% discount:

2. Be deliberate about how you display the discount

You might not have control over the amount you can deduct from prices to make your products appealing. What you can control, however, is discount presentation. You can optimize how you display the discount so it’s perceived to be more compelling by customers.

Apply the “Rule of 100”

According to Dr. Jonah Berger, a marketing professor at the Wharton Business School, for items that cost less than $100, it’s better to present the discount in terms of percentage, as that will be a higher number than the dollar amount saved.

For example, the Fitbit Ace 2, costs $69.95 (that’s less than $100). So, the discount expressed in percentage, which is 29%, is a higher number than the amount saved (~$20.00). In this case, it’s better to display the discount in terms of percentage, as it appears more impressive than the actual dollar amount saved:

On the other hand, if the product costs more than $100, displaying the actual amount saved will be more compelling, as that number is higher than the percentage.

Take the Fitbit Charge 3, for instance. It costs $149.95, so the discount expressed in percentage (33%) is a lower number than the amount saved (~$50.00):

For big ticket items, showing the discount as a percentage undersells the amount the customer saves. For an item at $1,124.99, for example, indicating that the customer is getting 20% off is less persuasive than saying that they’re saving $225:

Give a discount on top of another discount

People find a discount on top of another discount more attractive than a discount presented as one number, even if the amount saved is actually the same.

For example, Levi’s presents two separate discounts for the pair of jeans below. The customer initially gets about 30% off the base price, and then they can get an additional 50% off the sale price with the Cyber Monday coupon code. This discount presentation is bound to persuade more visitors to act compared to displaying a single discount and indicating that the customer is getting about 65% off the total price:

How you communicate the discount matters. One presentation will be more compelling than the other, despite them coming down to the same amount saved.

3. Demote the promo code field

The manner in which you ask for the discount code can impact whether a customer proceeds or abandons their cart.

Making the promo code box too visually prominent is tantamount to telling those on the checkout path to put off completing the transaction because there’s a better deal out there.

Indy Brand, for example, is bound to unnecessarily trigger the customer’s fear of missing out on a better price, as the discount code box draws too much attention:

So unless promo codes are available constantly and displayed prominently throughout your site, visually highlighting the discount code field will only cause users to leave the checkout page to look for a code elsewhere.

This can hurt you in a few ways – the customer might …

• … find a discount code from an affiliate, costing you affiliate fees and lowering your margins.
• … get distracted and completely forget about the purchase.
• … find the product on a competitor site and convert there instead.

NordVPN tries to mitigate against these risks by hiding the promo code field behind underlined text. The text opens into a box when clicked on:

Another way to avoid customers going off the site to hunt for coupons is by having modal text along the lines of “Don’t have a coupon?”. If the user clicks on the text, a lightbox popover should launch and tell the customer what they need to do to get a discount.

Offer an incentive that makes sense for your business. The popover can say something like “Join our mailing list, and get 5% off your first purchase”, for instance. Or you can ask customers to refer a friend in exchange for a discount.

This way, customers don’t feel as if they’re missing out on a deal.

Levi’s, for example, has a visually prominent promo code box in the shopping cart but tries to get around the problem of customers leaving the site to look for a coupon by listing the current promotions in a popover:

4. Make the effect of the discount obvious

Clarity is a critical consideration when applying discounts.

It’s important that you’re clear about whether or not the discount is already applied, or will be applied at a later stage before the checkout. Visitors might leave if they are uncertain about how you handle pricing for discounts. Strikethroughs on the original price, once you’ve applied the discount, make it very clear that you’re giving them the new, post-discount price.

J. Crew’s shopping cart, for example, does a good job of indicating the pre and post-discount price of the items. However, it fails to immediately communicate that the customer is saving a total of $648. That’s a missed opportunity.

Leverage the persuasion power of discounts and nudge customers to continue on the checkout path by clearly indicating how the discount affected the order total, similar to how it’s done in the Levi’s cart:

Execute Discount Pricing Strategies Right

Discounts are powerful tools, but they can easily backfire and do more harm than good. Disciplined marketers will ensure that they don’t shoot themselves in the foot:

• Avoid making discounts so common that customers get trained to expect them.
• Don’t miss out on making the discount more appealing by using the rule of 100 and applying a discount on top of a discount.
• Avoid calling too much attention to the promo code field – put that behind a link.
• Avoid ambiguity – make the effect of the discount very clear and obvious from the start.

If you use discounts carefully, you’ll make more visitors convert without harming your bottom line.