‘Tis the season for sales, and Boxing Day is one of the biggest shopping events of the year.
For most retailers, this post-Christmas financial injection is critical to their bottom line, and discounting is an ideal way of attracting new customers and boosting sales.
The problem with discounting is that a lot of marketers don’t think about it strategically. It’s easy to set up a blanket 10, 15 or even 20 per cent off sale storewide. People are in the mood to buy things, and you’re practically giving away money – it HAS to work! Heck, you might even be tempted to throw in free shipping to sweeten the deal.
But discounts are like drugs – as your price drops, so does the value of your product. The customer becomes dependent on paying less, thus fueling a downward spiral, and all of a sudden their enthusiasm to buy at full price has hit rock bottom. This short-term pleasure turns into long-term pain.
As our founder Jason Andrew says, “You can’t make up losses with volume. Buying something for $50 and selling it for $40 will never work. It’s just the law of economics – reality doesn’t work that way.”
Don’t get us wrong, discounting can be a legitimate marketing tool if used strategically. But there are other ways to entice customers to your store that are healthier to your bottom line.
Instead of discounting this Boxing Day, try one of these alternatives instead.
1. Use tactics to maximise your order value
If you’re going to discount, do something that increases your average order value (AOV) while protecting your gross profit as much as you can.
Spend and Save
These campaigns are an excellent way to ensure your customers are reaching an AOI hurdle before getting any sort of discount from your store. Offer bigger discounts the more you spend. While you might not be achieving top-line revenue growth, the overall profit can be much better.
Buy One, Get One (BOGO)
This is a classic tactic used by retailers because it works. Buying one – or even two – and getting one free is all about adding more value for the same price. It’s what’s called the “zero price effect”, where our demand for an item increases because it’s free. Take the Hershey’s experiment, for example.
When you focus on creating value instead of trying to win over new customers, you can promote your products and protect your margins without damaging your brand’s worth.
2. Create product bundles with old or slow moving stock
If you have a warehouse filled with older or slower moving stuck, discounting is a great way to get rid of it. The reality is that this old stock takes up valuable room in your warehouse and sucks up your cash flow.
Through a tactic called bundling, you can build campaigns that are centered around putting slow moving products together with newer, shinier versions.
3. Offer a gift (or gift card) with purchase
Free gifts are viewed as one of the most appealing promotional offers. They entice shoppers to get more out of their purchase, not by lowering prices, but by creating value when someone makes a purchase.
Gift cards are a great way to provide value to new customers without negatively affecting your brand value. Not only do they incentivise your customers to make a purchase in the future, but from an economic standpoint it’s also a win-win.
The gift card economy
Issuing gift cards is like deferring a discount to a future purchase. While most gift cards are redeemed within six months of purchase, those that are unused become stagnate. At the one year mark, just under 80 per cent of gift cards are redeemed, with less and less chance as each day passes. When gift cards go unused, that means more money in your back pocket.
4. Focus on customer loyalty
Getting return and repeat customers to come back is always cheaper than acquiring new ones. Instead of discounting, try engaging your existing customer base with exclusive offers and personalised promotions, or even giving them a preview of new products to come in the new year.
This is especially important if you’re selling products that are low value but high volume. By owning this narrative, you can avoid falling into the discount profitability trap, and build long-term brand value with your loyal customers.
Discounting on Boxing Day is often a default tactic used to increase your short term sales. But it can have a lasting effect on your gross profit and brand value.
Remember, there are always other tools in your kit to improve sales and provide value to your customers. One of these tools is our discounting calculator, which you can use to set a benchmark of the volume you need to sell in order to protect your margins.
Ultimately, the goal is to keep your customers coming back after a sale period is over. Otherwise, discounting is just buying friends to make you happy – and nobody wants that.