Discounts are a powerful tool for driving sales, building customer loyalty, and gaining a competitive edge in the marketplace. However, to maximize their impact, it’s crucial to select the right discount strategy and use it effectively. The key lies in aligning your discount approach with your business goals, understanding your audience, and ensuring your promotions are strategically designed. In this guide, we’ll explore how to select the right discount strategy for your store and share practical tips on how to use discounts effectively to boost sales, engage customers, and enhance profitability. Whether you're a new store owner or looking to refine your current discount tactics, these strategies will help you optimize your promotions and create lasting value for your business.

How To Choose the Right Discount Strategy for Your Store

Selecting the right discount strategy is essential for its success. Discounts, when used effectively, can drive significant sales and build customer loyalty, but the strategy must align with your store's goals and target audience. Here are some key points to consider when deciding on a discount strategy for your store:

Know Your Goals

Before implementing a discount, it’s crucial to understand the goal behind the promotion. Whether you're trying to clear inventory, increase sales volume, or attract new customers, each goal requires a tailored approach. Here are a few examples:

Clear Inventory

When you have old stock or seasonal items that need to be cleared, offering discounts can be a strategic way to move products quickly. This is particularly useful for products that have a limited shelf life or are no longer in demand. By discounting these items, you encourage customers to purchase them without causing significant harm to your overall sales.

Increase Sales Volume

To increase the volume of sales across your entire store, offering site-wide discounts or percentage-off deals can encourage customers to make more purchases. By applying a discount to every product on your site, customers are more likely to buy multiple items at once, increasing the total revenue per transaction.

Attract New Customers

Offering first-order discounts is an effective way to attract new customers and get them to make their initial purchase. These discounts are specifically targeted at first-time buyers and can include an X% discount or a dollar amount off their first order. The goal is to incentivize them to make that first purchase, which in turn helps build brand loyalty and encourages them to return in the future.

How to use promotions and discounts to achieve your retail sales goals

Understanding your specific objective is key in choosing the right approach, as each type of goal will benefit from different kinds of discount strategies.

Know Your Target Audience

Discounts work best when they align with customer preferences and purchasing behavior. By understanding your audience's motivations, you can tailor your discount structure to appeal to specific customer segments.

Price-Sensitive Shoppers: For customers who are primarily driven by price, percentage-off discounts (e.g., 20% or 30% off) are highly effective. This strategy works well for attracting budget-conscious shoppers or increasing sales during off-peak seasons.

• Example: ASOS frequently offers 20% off specific categories like women's fashion to appeal to their price-sensitive audience. This discount is often promoted via email, targeting subscribers who have shown interest in that category.

Customers Seeking Added Value: For customers who care more about value than the price itself, offering free shipping or buy-one-get-one (BOGO) offers can be more appealing than a straight percentage discount.

• Example: Zappos offers free shipping and returns on all orders, which appeals to customers who value convenience and cost-saving, rather than just discount percentages.

Loyal Customers: For repeat buyers, offering exclusive discounts or early access to sales can help reinforce loyalty and keep them engaged with your brand.

• Example: Sephora uses its Beauty Insider program to offer exclusive discounts and early access to product launches for loyal customers, ensuring they feel valued and encouraging continued purchases.

Types of Discounts to Implement on Your Website

By segmenting your audience, you can tailor your promotional offers to specific preferences, maximizing the effectiveness of your discount strategies. Understanding your customers' shopping habits and preferences ensures your discounts are relevant and likely to convert into sales.

Product or Site-wide Discounts

Once you've identified your goals and target audience, the next step is to decide whether your discount will apply to specific products, collections, or your entire store. Each approach has its benefits depending on your objectives:

Product-Specific Discounts: If you have certain products you want to promote or clear out, discounting individual items or product categories can help you focus on specific sales goals. This is useful for managing inventory or boosting the sales of products that may not be performing as well.

• Example: Best Buy frequently discounts specific products (like electronics) during promotional periods, ensuring that customers are focused on purchasing particular items, which in turn drives higher sales for those categories.

Collection-Based Discounts: If you want to encourage customers to explore a particular product line or seasonal collection, discounting entire collections can drive interest and sales across related products. This works well for product lines like seasonal clothing, holiday-themed items, or curated collections.

• Example: Macy's often offers discounts on entire collections, such as "Holiday Sale on Home Goods" or "Back to School Sale". This encourages customers to buy from multiple products within a specific collection, increasing overall sales volume.

Site-wide Discounts: Offering a discount across your entire store (e.g., 15% off everything) is an effective way to drive larger sales volumes, especially during big sales events like Black Friday or Cyber Monday. This strategy works well if your goal is to increase sales volume rather than push a specific product.

• Example: Amazon uses site-wide discounts during their Prime Day Sale, where a wide range of products (from electronics to fashion) is discounted, encouraging shoppers to buy more from different categories.

Each discount structure provides different advantages and should be selected based on your overall sales goals and audience preferences. Product-specific discounts help you focus on clearing inventory or promoting new products, while site-wide discounts work best for boosting volume across a broader range of items.

Choosing the right discount strategy is essential to ensure that the promotions work in favor of your store’s objectives. Understanding your goals, segmenting your audience, and deciding between product-specific or site-wide discounts are crucial steps in implementing an effective discount strategy. By aligning your discounts with customer preferences and business objectives, you can boost sales, retain customers, and maintain profitability.

Each of these strategies has been proven to be effective in different circumstances. With a clear strategy in place, you can use discounts not only to drive sales but also to enhance customer loyalty and ensure long-term success.

Common Discount Mistakes to Avoid

How to Use Discounts Effectively

Discounts can be a powerful tool to drive sales, but they need to be used strategically based on the type of business you run. Larger eCommerce stores with higher margins can afford to use discounts more liberally to attract customers, while smaller businesses with narrower margins need to be more cautious. Discounts shouldn’t be the primary customer acquisition tool for smaller businesses, as overuse can erode profitability.

Here are some effective scenarios for using discounts:

1. To Reward Loyalty

Loyalty programs or discount offers for repeat customers are an excellent way to retain business. Offering discounts to customers who have previously made purchases not only makes them feel valued but also keeps them coming back. It costs up to 10 times more to acquire a new customer than to sell to an existing one.

Example:
Starbucks has an incredibly successful loyalty program called Starbucks Rewards. Customers can earn Stars with each purchase, which can then be redeemed for discounts or free items. By offering these exclusive rewards and discounts, Starbucks successfully keeps customers engaged and encourages them to make repeat purchases. This program boosts customer lifetime value (CLV) by incentivizing frequent visits and increasing the likelihood of customers returning for more purchases. The result is a strong base of loyal customers who return time and again.

Starbucks Rewards: A Loyalty Program Case Study

2. Reaching Out to Influencers

Offering discounts to influencers (e.g., industry bloggers or social media personalities) can help you expand your reach. A discounted product provides influencers with an incentive to try your product, and they can promote it to their followers, leading to increased brand exposure.

Example:
Glossier, a beauty brand, has successfully collaborated with influencers to promote its products. Instead of running traditional paid ads, Glossier provides influencers with discount codes, which they share with their followers. This strategy not only boosts their brand visibility but also increases sales. Because influencers' audiences tend to trust their opinions, the audience is more inclined to purchase using the provided discount code, leading to a spike in sales and brand engagement. By leveraging influencers and offering them a discount incentive, Glossier has effectively utilized word-of-mouth marketing to grow its brand.

How This Beauty Brand Became a $1.2 Billion Company

3. Abandoned Cart Emails

A highly effective strategy for increasing sales is sending discount coupons to customers who abandon their shopping carts. Often, a simple nudge can turn potential sales into actual transactions. Offering a discount is a proven method to recover potentially lost sales, especially when timed correctly.

Example:
CartHook, a software solution for eCommerce stores, reports that offering a discount coupon in an abandoned cart email can increase conversion rates by up to 30%. Brands like Tarte Cosmetics use this strategy by sending out discount coupons (e.g., 10% off) to customers who leave items in their carts without completing the purchase. This encourages customers to return to the website and finalize their transactions, leading to recovered revenue that would otherwise have been lost.

CartHook Post Purchase Upsell

4. Referrals

Referral programs incentivize existing customers to refer their friends or family, tapping into new revenue streams. By offering discounts for successful referrals, you can attract new customers who are more likely to trust your brand because they’ve been recommended by someone they know.

Example:
Dropbox became widely successful through its referral program. Dropbox rewarded both the referrer and the new customer with free storage space or discounts. This program leveraged word-of-mouth marketing, with existing users incentivized to spread the word to new users. The result was rapid growth in the customer base, driven by trust from existing users. By offering a discount or reward for each successful referral, Dropbox turned its loyal customers into powerful advocates, contributing to the brand’s exponential growth.

The Dropbox Referral Program: 3900% Growth in 15 Months

5. Use a Different Pricing Strategy

Instead of relying solely on discounts, consider using an adaptive pricing model. This strategy allows you to offer different versions of a product at varying price points, catering to various customer segments, without devaluing the brand with constant discounts.

Example:
Apple uses an adaptive pricing model for its iPhones. Apple offers several versions of the iPhone, such as the iPhone SE (more affordable) and the iPhone 13 Pro Max (premium). This allows Apple to appeal to different customer segments—those who are price-sensitive and those willing to pay a premium for high-end features. By having multiple options at different price points, Apple avoids over-reliance on discounts, maintaining the premium perception of the brand while still catering to a larger market. This pricing model boosts sales volume while also maintaining brand value and customer loyalty.

What Can We Learn from the iPhone’s Pricing Strategy?

Conclusion

Discounts can be an extremely effective tool for driving sales and enhancing customer loyalty, but their success depends on how strategically they are used. By understanding when to offer discounts (e.g., rewarding loyalty, influencer marketing, abandoned cart recovery, referrals), and by adopting a more adaptive pricing model, you can maximize the impact of your discount strategies without undermining your business’s profitability or brand perception. It’s crucial to align your discount tactics with your store’s goals, target audience, and long-term growth strategy for the best results.