Back in 1887, Coca-Cola launched the first iteration of their iconic product. A few months later, they launched something else — the first coupons ever. Even back then, Coca-Cola knew something we take for granted these days: discounts are a powerful tool for winning new customers.
Flash forward to today, and ecommerce shops across the web are jockeying for the most valuable discount in the eyes of consumers. In fact, data from BIA/Kelsey found that small businesses expect nearly 18% of their sales to come from promotions designed for customer acquisition.
Why Discounts and Sales Work
What gives discounts and sales that kind of staying power? They’re remarkably effective at driving sales, and that can be attributed to three things discounts do really well:
- Create a sense of urgency
- Lessen the risk of trying a new brand
- Avoid the pain of missing out on a sale
Discounts, sales, and other limited time offers tap into our sense of urgency as shoppers. Urgency is a marketer's coup de grâce; it's what makes us buy today instead of next month or never. It cuts through analysis paralysis, second guesses and doubt. When shoppers are afraid to miss out, a lot of other considerations and roadblocks go out the window.
When shoppers are afraid to miss out, a lot of other considerations and roadblocks go out the window.
That’s what makes discounting so powerful for customer acquisition in particular. Huffington Post contributor and marketing expert Danny Wong asks, “When was the last time you purchased something new from an unfamiliar brand without a coupon?”
With thousands of ecommerce brands out there today, online shoppers have to take on some hefty risk when buying from a new, untested brand. Discounts — even small ones — can dampen that risk and help shoppers feel more confident in giving your shop a chance.
With thousands of ecommerce brands out there today, online shoppers have to take on some hefty risk when buying from a new, untested brand.
On top of that, we know that most buying decisions come down to pleasure or pain. We buy things that promise pleasure, and we buy things that promise to help us avoid some kind of pain. In the world of sales, the urgency of a limited time offer creates an expectation of cognitive pain for shoppers who miss out on the discount; they buy now to avoid that potential pain.
Discounts to Boost New Customer Acquisition
There are as many types of discounts as there are grains of sand on Maui, so it’s important to consider what your goals are for a sale before settling on a discount. These four discount types are among the best for attracting new customers.
1. First Order Discount
First order discounts are an enduring fixture of today’s ecommerce market. In short, you offer new customers a set discount off their first purchase from your store. These discounts are particularly useful for addressing one key part of the ecommerce equation: reducing the risk of trying out a new brand.
One of the biggest barriers for young ecommerce brands is getting customers to trust you enough to hand over their payment information, particularly when they can’t see or touch your products in person. First order discounts can mitigate some of that risk, so customers have less to lose when trying something new.
Combine an ongoing first-order discount with transparency, top notch customer service and fair return policies, and you'll be well on your way to winning customer trust and loyalty.
2. Buy One, Get One Discounts
There’s a lot to be said for dollar-off or percentage-off discounts, but the Journal of Marketing found something customers like even more than discounts: free stuff. Simply using the word free in your promotions can drive more shoppers to convert.
For example, "buy one, get one free" sales are more or less the same as a 50% off discount for two items — but they sound a lot better to customers.
The big reason shoppers love free might be different than you think. We love free promotions because we hate math. Shoppers don’t want to calculate what 20% off means or how much their order will be with $15 off. With BOGO sales, there’s no math. It’s just free!
3. Free Shipping
Questions around the best approach to shipping costs abound in the ecommerce world. Which and how many shipping options should you offer? What should you charge customers for them? Should you offer free shipping?
According to a Business Insider study, high or unexpected shipping costs are the number one cause of online shopping cart abandonment. How you approach shipping can win or lose you customers, in and of itself.
A lot of this comes back to concept of risk factor. The more a customer pays in shipping charges (which may or may not be refundable), the more they have to put on the line before ever touching the product. And when those shipping charges are deceptive or unexpected, customers won’t trust your business.
The more a customer pays in shipping charges (which may or may not be refundable), the more they have to put on the line before ever touching the product.
That’s why offering free shipping discounts can go a long way toward winning over new customers. And they don’t have to hurt your bottom line — consider placing a minimum order value threshold on your free shipping discount.
4. Bundle Discounts
The dreaded "analysis paralysis" is something retailers across every channel have to contend with. If you provide too many options (sometimes even as few as three or four), consumers may spend months trying to choose the right one.
Bundle discounts are one way you can ease that paralysis while also making it cost effective for new customers to try multiple options.
Bundling can also lessen that pesky risk factor we talked about before. Consider offering a trial kit (like Wander Beauty does in the screenshot above). The smaller sizes, lower costs, and ability to try multiple options mean customers have less to lose by giving your brand a chance.
Discounting Mistakes to Avoid
Discounts and sales can become a hot potato between ecommerce competitors. Some business owners think discounts cheapen your brand and make it harder to sell at regular price. Others say discounts are the only way to sell online today.
The reality is somewhere in the middle. Constantly discounting items can eat into your bottom line if you aren’t strategic about how you’re using those discounts to win and keep new customers.
Constantly discounting items can eat into your bottom line if you aren’t strategic about how you’re using those discounts to win and keep new customers.
To counteract that, avoid these four most common discounting mistakes:
- Discounting without a concrete goal
- Forgetting to consider your profit margins
- Discounting too often
- Failing to turn those new customers into loyal ones
Be smart about how and when you deploy discounts, and you’ll be well on your way to winning over smiling new customers.