Everyone loves a bargain, so snagging something on sale can often feel like an achievement but it becomes less so when sales are happening every other week. For a retailer, it can be a quick way to get people onto the website or inside the store. For customers, it might be the thing that gets them to finally decide to make the purchase but whilst it can give a boost to sales numbers in the moment, the long-term effects of doing it all the time can be incredibly damaging.

 

Why all the Discounts?

It can seem like an absolute dead certain way to increase the sales on a website and the fact that it is everywhere would imply that it is the single most effective way to convert people into customers, right?

Well, the real reason they are everywhere is that it is easy, not because it is the best way to convert customers. The short-term gain of increased conversion rates and increased sales soon give way to reduced margins and brand damage.

The convenience, effectiveness, and pleasure from seeing the sales spiking from throwing around discounts are hard to resist but like gambling, it becomes a hard habit to break.

 

It’s a Neurological Trigger

The reason these habits are hard to break is that they are hardwired into our brains. Constant repetition creates a neural pathway, a highway that gets easier and easier to access the more times we go down it.

When we do something repetitively, offer a discount or purchase using a discount, it becomes hardwired into our brains as a habit and when that habit is linked to pleasure (like increased revenue or grabbing that bargain) it triggers the midbrain which floods the system with dopamine.

The brain now starts to see it as the right thing to do because it becomes the shortest route to that success. With the reward centre of the brain being activated it’s even harder to stop because it just makes us feel good.

It’s simple really. When you couple a habit with a reward our brains just can’t help but think it is a great thing to do.

 

Discounts can create more problems than they solve

We’ve already mentioned that discounts hit the margins and reduce the overall total revenue that you’re bringing in but there has been research done that indicates that discounting lowers the overall lifetime value, lowers satisfaction scores like NPS and creates a higher level of revenue churn. This is when compared to promotions which created higher lifetime value.

Much of this comes from the fact that you’re fundamentally changing your customer’s behaviour and shifting the conversation away from value or experience and into one around price. Heavy or regular discounting trains your customers to either expect or wait for the next one. If they know a sale is likely, why would they ever pay full price for anything?

And if you’re using big discounts, the smaller ones become ineffective because they know if they wait, the bigger discount is likely to be just around the corner.

Discounts are designed to prompt action and drive urgency but what can end up happening is the urgency is killed off because customers start to realise it is fake, and that if they wait long enough, the discount amount or percentage is likely to go up.

 

Say Goodbye to Customer Loyalty

On our Podcast, ’15 Minutes With’ we had Ted Rubin, author of Return on Relationship, talk to listeners about inadvertently training customers with coupons. As he put it “No one wants to walk out of the store and be offered a coupon to walk back in. And if they do, you’re training them to get that coupon.” The same applies to discounts. If every sale you’ve ever had from a customer is with a discount attached, guess what, they are always going to want a discount.

He followed on “My business partner likes to say that they used to be brand loyal to pizza, but not anymore. His wife just wants to get the pizza from wherever they have the coupon from.”

You might be lucky and eventually convert some of these customers into long-term, loyal customers that start to purchase regardless of price, but the continuous use of discounts brings in bargain hunters and they are the most likely customer type to walk away when the discounts stop.

 

And Say Goodbye to Brand Reputation

All that time, money, and effort you put into building your brand becomes redundant because any perceived value is lost through the continuous use of discounts. You start to be seen as a discount brand and questions about whether products were ever worth the original price start to come up. Once you’re in that place, getting out of it is hard and the excitement of new ranges and products is gone unless they are discounted or priced to match usual discount pricing.

It can also damage reputation in ways you may not realise. Discounts can mask major usability issues on your website. The reasons you’re having to throw them in to start with could be due to losing customers because of bad copywriting, confusing layout or site structure, lack of social proof, poor traffic quality or just plain old terrible customer experience. These remain after the discount ends and your brand takes a hit only falling back into consideration when the discounts return.

 

So, What Can You Do?

To be clear here, discounting can be used for good. Be that to secure a high-value lifetime customer with a special discount or when used infrequently to create genuine urgency but there are other options.

Promotions work great. For those of you who think ‘well isn’t a discount just a promotion?’ not really. Promotions are used to offer additional value to the customer without the need to start slashing prices. Think gift with purchase, free shipping and returns or risk-free trials. These are all things that create value, build trust, remove potential doubt, and take the conversation away from price.

Other options are bundling products to build in value when bought together, offering aggregated loyalty discounts based on lifetime value and customer spend, creating a buy one, get one free offer to clear out inventory rather than resorting to heavy discounting and if you do want to discount, create single-use codes that can’t be shared across the internet on coupon and sales websites.

If the problem you’re trying to solve is conversion, you may need to look at your site for opportunities to improve it. Things such as layout, product information, related products and personalised recommendations can create a huge shift when they’re working at their best. The experience you are offering to customers with your online store is vital.

Even considering things like improving available payment options and hiding the promo code entry point on the checkout to stop people leaving the site on a search for a code because ‘if there is a space for it, surely it must exist’ can dramatically enhance conversion.

 

Take action

Review what you’ve got coming up and see if there is a way to get a little more creative with the use of promotions. Find out what your customers want, review your site and your analytics to see if there is something else that is causing customers to get stuck or leave your site and experiment a little. You’ll start to improve margins, strengthen the brand, and drive loyalty all without the need to cut prices.

We know times are tough for everyone right now, but you need to think about the future and not create solutions in the short term that drive insurmountable challenges in the long term.