If you haven’t heard already, Jet.com is on the rise to give Amazon a run for its money. For a $49.99 annual membership fee, Jet users get access to what Jet.com claims to be the lowest prices online for millions of products. Certain purchases also unlock further discounts and deals as explained in their introductory video. Discounts, deals. That’s music to millenials’ ears–and this is exactly what Jet.com got right.
Jet CEO Marc Lore realized that we are living in an era full of bargain-hungry shoppers and he believes that those shoppers are only increasing in number. While today those who participate in e-commerce tend to be privileged shoppers who pine for convenience, Lore hypothesizes that soon the online-shopping demographic will grow to encompass the general public, “ whose primary concern is savings, and who won’t mind paying a fee for the privilege of accessing really good deals.” And he may be right. According to Rajiv Lal and José Alvarez of the Harvard Business School, 55% of those surveyed aged 18-34 said that they have used discount codes online. 38% of 35 to 54 year olds and 21% of those aged 54 and up said the same thing. If the trend follows, in a few generations, practically everyone will be using coupons and asking for more discounts.
So how can you set up promotions or discounts to attract more customers while still gaining revenue? Here are a few strategies to consider:
1. Volume Discounts
Having two different sizing or quantity options for your products can help you sell more. By making the per unit price of the larger size slightly cheaper, customers see that they are getting a good deal and lean towards purchasing the larger size. In order for this to be effective on your end, you must be aware of your gross margin, markup, and breakeven price. This way you can calculate how much of a discount you can give while still profiting. Rafi Mohammad of HBS’ Working Knowledge advises using volume discounts only in particular instances, mainly when you have to match up against competitors and when you want higher consumption.
When implementing volume discounts, remember to advertise the ‘savings’ aspect that your customers will benefit from. According to the Economist, customers value getting more than paying less; when promoting discounts, focus on the added bonus that customers get.
2. Limited Time Promotions
Limited time promotions, such as flash sales, create a sense of urgency; and “urgency is a critical element in moving customers past the purchase threshold,” says Matt Win, of Volusion. Urgency can cause shoppers to act impulsively without thoroughly considering other options.
Promotions can also be seasonal or periodic. By recording and analyzing your sales cycles, you can observe when sales are weak or strong and plan your discounts accordingly.
3. Referral Program
Offering discounts to those who refer your business to others is a great way to expand your brand’s presence in the market and drive sales. Referrals can be tracked through software such as Ambassador, or through electronic or paper forms and social media. Incentivizing existing customers with a referral program during a promotion (such as a seasonal promotion) can hook new customers onto your products and services even more.
4. Free Items Within Reach
Domino's rose above its competitors in the 1980s when it announced that any customer who didn’t receive their pizza within 30 minutes of ordering it would get it for free. Depending on volume of orders within a given time, 30 minutes was fairly doable as long as those in the production stage stayed focus and efficient. The likelihood of Domino’s not fulfilling this promise was slim, although not null. Although they had to cut this rule short in 1993, today they are still one of the strongest existing pizza chains.
Similarly, you can make a promise to your customers and offer compensation for failure to follow through. You can think of it as a rebate or saying ‘guaranteed or your money back.’ Companies offer rebates because they know most customers are too lazy to fill out the form and mail it out. As the provider of the service or product, you know that you will for the most part be able to fulfill whatever promise you make, but customers on the other hand are hopeful thinkers. They often think that the odds are in their favor. That’s why the Domino’s promotion worked. So long as you can execute and avoid excessive giveaways, this tactic can help drive sales and generate profit.
No matter what the strategy, make sure that you keep your marketing team highly involved in carrying out promotions. Half of discounting is about perception. You have to make it enticing for customers–something they can’t resist.
Aya Tsuruta is a Content Marketing Journalist at Repsly where she covers sales and marketing content through a creative lens. In addition to writing for Repsly, she is a frequent contributor to the music blog, Indie Music Filter, and BC magazine, the Gavel.