Simple pricing strategies you can pick from according to your goals
Why use discounts?
Let’s look at what discounts essentially are. A business offering a reduction in price of a product/service in order to drive more sales. This might seem strange or even counter-intuitive. What’s the point of reducing your profit margin per sale in order to drive more sales? Even if the strategy works and you end up selling more, there’s a good chance your total profits won’t increase by much.
A good place to begin with is that the success of a business can’t always be measured by the profits it makes. What image does the name Uber Technologies Inc bring to your mind? A good guess that it’s somewhere along the lines of a global giant. However are you aware of the profits it made in the last quarter? Short answer — they didn’t. They in fact reported losses of 1 billion dollars. However this didn’t stop them from going public with large investors continuing to pump funds into this company. That’s because the success of a company can and is measured by the number of sales/ customers it has. And discounts are one of the best ways to acquire new customers while also keeping your existing customers hooked to your business.
Many businesses disagree with the concept of using discounts to keep customers engaged stating that ‘customer loyalty can’t be bought’ And while this is most certainly true, another undeniable fact today is that the concept of loyalty is a thing of the past. Customers today have a plethora of options and with mobile commerce businesses looming, switching from one business to another is as easy as a few clicks on your smartphone.
We’ve reached an age today where a business cannot depend on it’s legacy to take them forward. We’ve witnessed large giants losing out on market share to startups simply because they have an almost good enough product for a much lesser price. That’s probably the reason why today we see even huge companies offering discounts to customers in an attempt to keep them hooked.
We’ve also written a blog targeting the question on if promo codes and discounts really help with retention.
How to position your offers?
The success of your offer doesn’t only depend on the amount of discount you’re offering. A large discount could fail to reach its full potential of conversions if not positioned correctly.
Understanding the conversion funnel
Conversions are thought of as a single streamlined process. User gets notified of promotion, user visits website, selects product, applies coupon code, checks out — success. A simple way to gauge the truth behind this thought is to think about the last time you purchased something from an online store you hadn’t visited before. A more realistic path to conversion is : user gets notified of promotion, user visits app, browses for a while, looks at a few products and then something else comes up so they leave. A few days later, user receives another notification reminding them that the promo is about to expire, user opens app again, browses in the hope of finding a product they would like to buy in order to make best use of the promotion adds to cart but doesn’t end up making the purchase. The next day user sees an Instagram advertisement about the products they were browsing and an email about the product left in its cart along with the promo code. User clicks on link within email and completes the purchase.
Therefore it’s not just the value of the offer or the products that it is offered on that matter. But what also matters is how you incorporate your offer campaign taking into consideration the various stages within your conversion funnel that your target users might be in.
We’ve created a detailed guide on creating effective mobile marketing offer campaigns that you can incorporate along with your discount strategy.
Discount strategies you can implement
Creating discount strategies can be tricky. A discount is essentially a number but the value of this number depends on several factors. While deciding on a discount strategy factors that must be taken into consideration are business goals, the current state of your business, your marketing budget.
We’ve got 4 discount pricing strategies you can use. We’ve also included use cases and examples to help you pick and modify these according to what suits your specific business.
- Percentage discount with capped amount
Variables = [% Discount + Max Discount Amount]
A very commonly used discount pricing strategy with just two variables. These are suitable if you don’t sell products with very low prices and if you do, you’re okay with losing out on your margin even for the inexpensive products. For inexpensive products this offer can be easily exploited by customers looking to save up even those last few pennies. However if you want to go all in to boost sales, this is the discount pricing strategy for you.
2. Fixed discount amount valid only above a fixed order value
Variables = [Flat Discount Amount + Minimum Cart Value]
This is a common discount pricing and can be implemented in several ways. Offering free shipping on orders above a certain amount is a well executed form of this strategy. A discount could also be replaced by offering a free product on purchases above a certain value. This is a great way to get customers to try out new products by offering them for free along with a relevant purchase.
3. Percentage Discount only above a minimum cart value
Variables = [% Discount + Minimum Cart Value]
If your marketing budget is high, and you want to increase your average order value, this strategy is the most effective. Here, there is no upper cap on the discount amount received but requires a minimum cart value to obtain the discount. This affects customers psychologically and makes them feel like they get more value for money by purchasing products worth more money and end up converting with a higher order value.
4. Discount with a lower and upper cap.
Variables = [% Discount + Minimum Cart Value + Max Discount Amount]
This strategy requires you to set a lower and upper limit on the amount of discount you’re willing to give a user. This will increase your average order value but by a relatively lower margin than if you didn’t have an upper cap on your discount. However an advantage of this strategy is that your marketing budget spend will be under control.
If your business is just beginning to run offer campaigns, we’d suggest starting with Strategy 4 (Discounts with a lower and upper limit). Optimize your marketing strategy to make sure the right audience is targeted with your campaign. Once you’re comfortable experimenting and increasing your budget you can try out the other discount pricing strategies. Measure your conversions and engagement metrics for each campaign and run A/B tests to get the most out of your campaign.