Thursday, June 4, 2009

Promotional Discount Strategy

From restaurants to department stores to online merchants, the current economic downturn encourages retailers to offer discounts to remain competitive. Offering a loyal client or new prospect encourages a consumer to visit a retail location and gives motivation purchase a product.

From a retailers perspective, the strategy of offering a discount can be a challenge.

  • Do I offer a dollar amount off my product?
  • Do I offer a percentage off my product?
  • Do I require consumers to purchase a certain dollar amount before the discount applies?
  • Do I make it a short or long term promotion?

Recently, a colleague conducted an A/B email test for an online retailer. She sent one email that offered $15 off purchases of $75 or more to one group and another email offering 20% off purchases of $75.00 or more to another group.

The results? More people responded to the 20% discount, but the retailer made more profit from the $15 discount because the average purchase amount was higher.

Why? She concluded that people spent more with the $15 discount, because they viewed the discount in real dollars, not as a percentage discount.

Lessons Learned: When you create your next discount strategy, consider offering a tangible dollar discount. Consumers need to quickly process how much they are saving. Although a quick calculation can tell a consumer that $15 is 20% of $75.00, requiring consumers to think about the calculation places the focus on the math and not your products.

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