-By Tanishq, Madhumita, Shamyatha and Ratiba
When was the last time you happened to visit your favorite Adidas outlet because of some crazy offer you heard about from your friends? Adidas is the obvious most cool sports outlet and offers on your favorite trendy products of theirs are an absolute treat, isn’t it? But have you ever wondered how these discounts and offers work in real life in a market? How are some of your favorite brands and stores managing to get you to buy most of their products and keep you hooked? What even is the psychology behind attractive offers on e-commerce platforms and offline markets? Let’s dive deep into that. First, to keep things simple, let’s start with the basic question.
Discounts are price reductions from the list price of an item or service. It is a marketing strategy used to entice more customers and increase the sales of goods and services. Customers rush to buy the product during the sale because they feel motivated to do so by the discounts. Discounts occur in many different forms, and on occasion, they might only be accessible to a specific category of customers (for example student discounts). The next question that boggles our mind definitely has to be, ‘Why, discounts’? Let’s get into that.
Why are discounts given?
From the outside, it might look like it is benefitting the customers more than the producers. But as we dwell deep into it, we find that reality is something else. There are a number of reasons why discounts are offered other than for a good customer base. Here are some of them:
- The revenue per catalog (RPC) will often rise by 20% or more when free delivery is offered. Be careful not to set the amount required to qualify for the shipping offer too high if you want to increase response rates. If your typical order is $75, for instance, that indicates that roughly 80% of your orders fall below that mark and 20% are above it. Only a small portion of consumers will be drawn to the offer if the threshold is set at $99 or even at $75.
- Attract new customers: Discounts draw people in and they often spread via word-of-mouth, which is an effective approach to reach new clients while limiting customer acquisition expenditures. For instance, in 2018 Vail Resorts introduced a special reduced yearly pass for service members. A 50% boost in new customer acquisition was achieved by the hospitality brand through substantial promotion, media attention, and word-of-mouth.
- Boost the brand reputation: Targeted discounts can really boost your brand’s reputation and image, especially if they are connected to an issue or group that your target market finds important. The shoe company Rothy’s gave medical staff a discount during the early stages of the COVID-19 outbreak and distributed 100,000 masks to frontline workers in need of PPE. To express support for teachers struggling with school closings and online learning, Rothy’s also increased its customary teacher discount from 15% to 20%. In addition to expanding its audience, the brand gained the goodwill and favorable news by helping distressed consumer communities.
When are discounts provided?
- Seasonal discount — in December, close to Christmas and New year (Black Friday sale).
- New product launch — to entice customers to try it out and possibly switch to this option.
- For new customers — it is given the first time a customer buys a product from the company.
- When there is a lack of inventory space — this type of sale is called clearance sale.
- During festivals — Independence Day, Dussehra, Republic Day etc.
- On special occasions — some stores offer discounts during the birthday month of the customer, or on anniversaries.
- On achieving new milestones — during the anniversary of the store or once they reach a certain number of customers.
Most common types of offers
- Offers for free shipping
- Discounts on the product price
- Reward points / loyalty programs
- Flash sales(one day only)
- Cart recovery
- Exclusive discounts
- Mystery offer (offer to selected customers)
- Club your bestsellers with slower-moving products
- Clearance discounts
- special one-day offer for customers on their birthday
- Buy 1, get 1 free
- Free Delivery
- Gift vouchers
- 10% off discounts
- Loyalty Cards
- Student Discounts
Types of products that sold the most during offer time
Let’s now dive into the scenario of discounting. There are different sets of products which are sold the most during the offer period. Each one may cater to different reasons as well, as to why it is the most sold. Some of them are:
- Popular items: Since buyers are more likely to take advantage of discounts on items they were already planning to buy, popular commodities like electronics, fashion, home appliances, and personal care products typically sell well during offer periods.
- Seasonal items: Seasonal items, such as clothing and outdoor gear, tend to sell well during offer periods as customers are looking for deals on items they need for the current season.
- High-priced items: High-priced items such as furniture, appliances, and electronics tend to sell well during offer periods, as customers are more likely to take advantage of discounts on items that have a higher value.
- New releases: New releases, particularly in the technology industry, tend to sell well during offer periods, as customers are eager to get their hands on the latest products.
- Personalized recommendations: Personalized recommendations based on browsing and purchase history can also drive sales during offer periods, as the e-commerce platform is able to offer customers deals on items they are more likely to be interested in.
Technical concepts related to discounting/offers
- Product Bundling: Product bundling is a marketing strategy in which a number of products are bundled together and offered for sale as a single item. This tactic is employed to persuade clients to purchase more goods. Product bundles include, for instance, Happy Meals from McDonald’s. When offered together rather than individually, a burger, Coke, and french fries generate higher sales than when sold separately. Advantages: a) Increase your average order value. b) Decreases marketing and distribution costs. c) Reduce inventory waste.
- Cross-selling: Cross-selling is the practice of promoting the purchase of any item in addition to the main offering. Cross-selling could persuade a customer to buy a subscription to your CRM, for instance, if they have already purchased a subscription to your marketing tool. Let’s imagine you work at a fast-food chain where a customer wants a burger. Provide additional goods to make a full supper if you wished to cross-sell. For instance, you could inquire whether they would want to order fries and a milkshake to go with the burger. In this instance, you’re securing the first transaction with additional goods.
- Upselling: Upselling refers to the practice of promoting the purchase of anything that would increase the cost of a customer’s subsequent purchase by adding an upgrade, enhancement, or premium option. To upsell a burger, you’d offer options for a more elaborate burger. So, for example, adding a slice of cheese or a pickle for an additional fee. Or, you could tell them about a higher-quality cut of beef they could choose for a small premium.
- Quantity Discount Strategy: When a business uses a quantity discount approach, it may provide lower rates for larger orders or discount different quantities of a particular product. One of the most popular uses of this method is the traditional “buy one, get one free” offer. In this case, Papa John’s used a quantity discount method by bundling an extra at a lower cost with the initial transaction.
- Location-based Discount Strategy: This is used to reduce shipping expenses or to draw customers from a certain area. Using this method frequently turns into providing lower delivery rates for specific consumers in particular areas. In this case, Walmart’s “pickup discount” lowers shipping costs by encouraging customers to pick up their own purchases with small discounts.
- ‘Selling at a loss discount’ Discount Strategy: As the name suggests, this strategy focuses on companies purposefully not turning a profit on their goods or services. For instance, despite the fact that it doesn’t make money from those sales, Costco has essentially promised to constantly sell its rotisserie chicken at $4.99. Customer satisfaction is increased by selling its chickens at a loss, which helps Costco establish itself as a dependable, customer-first brand.
Customer behavior on discounting and offers
Customers are typically more likely to take advantage of bargains and promotions that they believe give a good value, such as discounts on expensive goods or buy-one-get-one-free offers. Also, consumers can be more likely to benefit from specials and promotions that are only available for a short period of time, such as doorbuster offers or flash sales. Consumers, on the other hand, might be less likely to take advantage of promotions that they believe to be of little value, such as modest reductions on inexpensive goods.
More than 64% of online shoppers wait until items go on sale before making a purchase, while more than 59% look for coupon codes first. While 22% of consumers only buy products from their favored brands when they are on sale or when they have a coupon, about 30% of online shoppers sign up for price tracking services to receive emails when the price for the item they want to buy reduces.
So, what can we conclude from this?
From the outside, the world of discounts and offers looks attractive and convenient to the buying world. If we go into the depth of the working, we see that it isn’t just a pro for the market but also for the customers. The technicalities involved in producing viable offers tend to spend roughly equal efforts and kind as much as we receive in the end from the whole process. Even though the weighing beam looks unbalanced on one side, taking all the expenses before and after the discounts, we see it is more or less balanced out. We can also draw a conclusion that timing plays a very important role in deciding the impact of the discounts/offers provided. Timing along with many other factors chart out the success rate of the discounts given. All in all, discount serves to be a boon as well as a bane to the provider and the receiver in different perspectives.