The answer is, as always, “It depends…”
The 10% off discount is so overused in the e-commerce realm that it’s taken for granted now. Retailers are struggling to stop shoppers from abandoning their carts or going to buy from their cheaper competitors instead.
As with all competition, there’s an inevitable race to the bottom on price.
I offer 10% off
You offer 15% off
I offer 20% off
You offer 25% off
The cycle continues downward until it reaches its inevitable conclusion when all the profit has been thrown overboard in the name of a sale.
“…the problem with the race to the bottom is that you might win.” — Seth Godin
The Right Way to Discount
If you are going to discount anyway, you need to be aware that the “percentage off” approach isn’t always the most attractive, or profitable.
Here are two alternatives that I always use:
Buy “x” get “y” for free
Actual amount off
It’s all about the appeal. Your customers’ money wants to be seduced, so giving them the same thing everyone else does, in the same way, doesn’t separate you from the pack.
The Profitable Hidden Gem of Discounting
With good profit margins, it’s often more profitable to give away a free product than an overall discount. For example:
Customer cart = $50
10% off discount applied= $5 off
Cost of goods on the item that sells for $8 = $2 raw cost
Giving them the product instead of the discount = Customer gets $3 more value and you lose $3 less.
By giving them a free product with a value of $8, the customer thinks they’re getting a better deal, a free product worth $8 and you are definitely getting a better deal because it cost you $2 to win the sale and not $5.
Consider your product line and the raw cost of desirable products you have in stock. If the perceived value is more than the proposed percentage discount and the cost of goods is less than giving the discount, you’ve unlocked the magic formula.
Giving an Actual Dollar Amount Off
In his book Contagious, Jonah Berger talks about “The Rule of 100.”
“The Rule of 100 says that under 100 [dollars], percentage discounts seem larger than absolute ones. But over 100 [dollars], things reverse. Over 100, absolute discounts seem larger than percentage ones.” — Jonah Berger
Essentially 10% off a $90 product is attractive, but at $100, the percentage discount seems less attractive than the total money saved. By positioning it at $10 off, instead of 10% off, it makes the offer more attractive to buyers.
This is also true for bigger discounts. I see a lot of half-price sales on expensive products, but if you have a $300 product, don’t say half, or 50% off, say $150 off. It seems huge and will have your customers clicking “add to cart” faster than ever before.
Of course, the goal is to use discounts sparingly, but when you do decide to use them, you want them to be as powerful and as effective as possible. By following these two alternatives, you’ll be maximizing results in your marketing efforts, because even if the math dictates that they are, not all offers are created equal.