Having an online shop is a great way of broadening your revenue stream. Online shopping benefits not only the customers but the business as well. It makes it easier to find products or services from their phones or laptops and provides convenience for consumers who don’t like going to malls or stores. The one thing you need to figure out once you have provided your customers with an online shopping option is whether or not you should offer discounts on your products and services like free shipping.
Online shops are also known as e-commerce stores. They are a website, app or digital platform that allows businesses or individuals to sell their products or services over the Internet.
In this article, we discuss some of the advantages of offering discounts and whether or not you should include them for customers.
Advantages of Offering Discounts
Offering discounts is the simplest way to ensure your customer retention rates stay high. According to a 2022 report, 62% of shoppers do not buy from a retailer if they don’t offer free shipping or discounts.
Here are some advantages to offering discounts on your online store:
Increase in Sales
Discounts can help boost your overall sales. If you offer something like free shipping, shoppers are more likely to buy because they don’t have to pay for shipping. If you don’t have any discounts, shoppers will go to other retailers who do offer discounts. This will affect your overall sales rates.
Increases Average Order Value
Having discounts increases your average order value. Average order value (AOV) tracks the average amount spent each time a customer places an order on your website or app. Having discounts on your online store will significantly boost sales because it increases the average amount customers spend on your products and services.
Less Abandoned Carts
If a customer puts one of your products in their cart and discovers there are no discounts at checkout, they will not buy. This means you will have another abandoned cart on your website. Offering something like free shipping can help the customer get past the payment hurdle because they realise they are saving money.
These are just some of the benefits of offering discounts on your online shop. If you have been convinced of it, you can now start preparing for the costs of offering discounts.
How to Cover the Costs of Offering Discounts
Here are some of the best practices to follow if you want to start offering discounts on your online shop.
1. Know your Audience
To create an effective discount strategy, you need to understand your target market. You need to know demographics, preferences and the buying behaviour of your customers. Having this information will help you determine the best discounting strategy for your products and services.
Leverage customer relationship management technology to conduct a deep dive analysis into the buying behaviour and preferences of your audience.
2. Calculate your Costs
Before you can start offering discounts, make sure you consider the costs of it. You need to understand the costs of materials, labour, overhead and other costs and how offering a discount will affect that.
Without considering your costs, you run the risk of offering a discount that is too high or low, which can impact your profitability.
3. Use Dynamic and Tiered Discount Strategies
Dynamic pricing strategy means adjusting your pricing to fit market conditions, demand and other factors. This will allow you to optimise your pricing and discount offers in real-time based on market-related data.
Another strategy to try is tiered pricing. Tired pricing is when you offer different prices for different levels of a service or product. This is an approach typically used by software companies. You can implement discounts on the different tiers, which will help you onboard more customers on your highest tier while still maintaining sales and interest on the other tiers.
4. Use Your Discounts Strategically
Discounts can be a useful tool for attracting new customers and retaining existing customers. However, you need to be strategic with how you use discounts to not offset your profits. Having too many discounts will impact your profits negatively.
Before you offer discounts, consider things like timing, duration and the size of the discount. For example, clothing stores typically offer higher discounts when it comes to a change of season. As winter comes along, summer clothing will be cheaper and have higher discounts.
Remember, offering discounts does not mean you just wait and see if people will make purchases. It also involves a range of factors like the target audience and how you leverage technology to ensure maximum profitability.
Don’t be scared to offer discounts. With a good discounting strategy, you can maximise your discounts to bring you more customers and significantly increase your profits.
