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- 💰 Why Discounting Could Be Hurting Your Online Store – And What to Do Instead
💰 Why Discounting Could Be Hurting Your Online Store – And What to Do Instead
...No Discount Codes Required
Luke Tengstrom
August 26, 2024
Earlier this week, I was at one of my favorite cafes in New York, where every table was full and a long line of people waited outside.
The wait time for food was longer than usual, and the people sitting next to me were not happy.
When the manager came by, they complained, and I expected him to offer a free meal. But instead, he surprised me by offering them something extra from the menu, free of charge.
Curious, I asked why he didn’t just refund their meal.
He replied, “If we refund, we lose the revenue. By offering something extra, we keep the sale but only take a small hit on the cost.”
His response was incredibly smart – why erode any revenue the customer has already agreed to pay?
It got me thinking how can I apply this principle to the world of ecommerce?
Avoiding discount traps when running an online store:
We’ve all been there when running an online site, tempted to throw out that ‘WELCOME10’ discount code to reel in a new customer.
If you’re not careful, this approach can slowly erode your margins and train your customers to expect bargains rather than valuing your products at full price.
Relying on standard discount tactics can also strip away any sense of scarcity or urgency.
When discounts are always available, customers quickly learn there’s no need to act fast.
This week, I’m sharing seven advanced tactics that will help you steer clear of discounting on a customer’s first purchase.
Let’s jump into it.
1. Offer a Cash Bonus Instead of a Discount Code
Instead of the typical percentage-off discount, offer a small cash bonus, like a $5 or $10 coupon.
Psychologically, customers perceive cash as actual money they must spend, which creates a different kind of value than a discount.
Even if the cash bonus is less than what they’d save with a discount, it still generates a sense of urgency and increases perceived value.
In Action:
Promote this bonus through a pop-up or email capture form, emphasizing that it’s a limited-time offer to increase urgency.
Use your onboarding email flow to remind customers to use their bonus before it expires.
2. Gift a Free Product with a Full-Price Purchase
Instead of cutting into your margins with discounts, consider offering a free gift with a customer’s first full-price purchase.
This strategy is effective because the perceived value of a complimentary product often outweighs the appeal of a simple discount.
Customers love getting something extra, and for you, the cost is minimal, just the product’s cost of goods sold (COGS).
I recently implemented this for an online beverage company. We replaced their 15% welcome offer with a free gift of additional juices.
The result? Conversion rates actually increased, and customers had the chance to try less popular flavors, leading to cross promotion for repeat orders.
In Action:
When selecting the free product, choose something that naturally complements the main purchase.
For example, if you sell grooming products, offering a free travel-sized beard oil with the purchase of a full-sized beard balm can introduce customers to another part of your product line.
Highlight this gift prominently in your pop-up flows and on your product pages to ensure customers see the added value.
3. Implement a First Purchase Guarantee
Introduce a no-risk, first-purchase guarantee to remove the hesitation that often comes with buying a product for the first time.
This strategy is particularly effective in industries where customers may be cautious, such as apparel, tech gadgets, or health supplements.
By offering this guarantee, you show confidence in your product’s quality, which can greatly enhance customer trust and lead to higher conversion rates.
In Action:
Prominently display this guarantee on your product pages and throughout the checkout process.
To protect your business against fraud, implement a return process that requires the item to be sent back before issuing a refund and limit the guarantee to first-time customers only.
4. Leverage Tiered Pricing Strategies
Tiered pricing is a smart way to give customers an incentive to make larger purchases.
By offering different pricing levels based on the quantity or value of items purchased, you can incentivize customers to spend more, thereby increasing your average order value (AOV).
Even though the order size is bigger, this tactic won’t significantly raise shipping costs, as shipping expenses typically don’t scale directly with order size.
In Action:
Set your tiered pricing thresholds strategically. For example, if your average product price is $60, consider setting the first tier at $100 for two items and the next at $180 for four items.
While this email focuses on avoiding discounts, adding them to a tiered pricing is a great motivator for larger purchase sizes.
5. Bundle Products for Added Value
Instead of discounting, offer product bundles that provide more value for the customer at a slightly reduced cost per item.
This not only increases the average order value, but also gives customers the feeling of getting more for their money without needing a discount.
In Action:
When creating bundles, think about how the products work together to meet a customer’s needs.
If you sell fitness gear, you could bundle a set of resistance bands, a workout towel, and a water bottle as a ‘home workout essentials’ kit.
Price the bundle strategically so that it offers a slight savings compared to buying each item separately, but without undercutting your margins.
Always lead with the bundle offer first rather than individual products – it’s an effective price anchoring technique that gives the solo products perceived higher cost, nudging the customer to go with the bundle instead.
The Bottom Line: Keep Your Margins High
Discounting doesn’t (and shouldn’t) have to be your go-to strategy for attracting new customers.
By employing these advanced tactics, you can protect your margins and create a buying experience that highlights your value – without ever dropping your prices.
Next time you’re tempted to use that ‘WELCOME10’ discount code, remember the lesson from the cafe: instead of eroding your revenue, think creatively about how you can offer something extra to provide the incentive for purchase.
May your sales be as steady as the cafe’s coffee line,
Luke
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Consider this a virtual high five in advance! 🖐️