How to Use Discounts to Boost Customer Acquisition

Everyone loves saving money, so discounts make sense as a way to attract customers. But many companies worry that discounting will negatively affect their bottom line or reduce the perceived value of their products. These are valid concerns but ones that can easily be remedied with the right pricing strategy for discounts.

There are also several different types of discounts to choose from as you build your discounting strategy. Let’s take a look at how to leverage these various discounting methods to build a loyal customer base and generate new revenue streams.

What are the Benefits of Discounting?

There are many compelling reasons to offer discounts, including:

Boosting Sales

Promoting a special discount drives traffic to your website, which can naturally lead to increased sales. For example, Willow’s discount for healthcare workers, teachers, first responders, and the military drove a 40% increase in sales and brought in 25% of their revenue.

And this doesn’t just mean more sales for discounted items, either; when customers visit your site because of an offer, they may also purchase additional products at full price. Or, they might return later for repeat purchases after trying out your brand.

Acquiring New Customers

Discounts are a proven way to attract new customers who will be more willing to give your brand a try for a lower price tag. For instance, half or more military members and students would buy from a new brand if given an exclusive offer.

Many brands have seen impressive acquisition gains from incorporating discounting into their marketing strategies. Consider Comcast. They wanted to acquire more Gen Z customers, so they created a gated student offer. As a result, subscriptions went up 6x and conversions increased 91%.

Engaging Current Customers

Promotional pricing is also a great way to retain current customers, drive repeat purchases, and improve customer loyalty. Offers show that you care, and this will encourage customers to view your brand positively and keep coming back for more. This is great for your bottom line because repeat customers often spend more money and have a higher customer lifetime value. For nutritional brand Gainful, retention increased 25% once they began running their military discount campaign.

To maximize the impact of re-engagement campaigns, you can also collect zero-party data while offering discounts. This information, which customers freely offer up in order to get something they want, helps you personalize campaigns to keep customers happy.

Increased Brand Awareness

Consumers love to tell their friends and family when a great brand is having a sale, and this word-of-mouth buzz can send your brand awareness skyrocketing. This is especially true when you have discounts targeted towards consumer communities that share identity-based attributes, such as their affiliation or job. For example, if you offer a military discount and someone redeems it, they likely know many other people who have served. In fact, 96% of military members would tell other eligible people about an exclusive offer.

Improving Brand Reputation

When you provide discounts, it shows that you value your customers and want to make your products accessible, particularly if you use your discounts to help a consumer community or cause that is important to your audience.

For sunglass brand Shady Rays, giving back has always been important. They donate to Meals for Wheels and give away free sunglasses to members of the military during Military Appreciation Month in May. For some time, Shady Rays has offered a military discount to honor the sacrifices these individuals make, and after the COVID-19 pandemic hit, they also extended the offer to first responders and healthcare workers.

How Does Discounting Tie into Recession Marketing?

As of 2022, an economic recession appears to be looming on the horizon. The ongoing effects of the COVID-19 pandemic and the war in Ukraine are fueling this downturn as inflation rises and global growth slows. Whether businesses are feeling the effects of the recession yet or not, it’s time to start thinking ahead. During economically challenging times, customers naturally limit their spending and focus their money on necessities rather than luxuries. They start looking for ways to save, such as switching to cheaper brands or—you guessed it—taking advantage of discounts.

Discounts give consumers a safer way to test out your brand during a recession. And just because they came for the discount doesn’t mean they will only buy discounted items. If they decide your brand is worth it, customers will often stick around, even if they are no longer eligible for a discount.

Of course, businesses will be affected by the downturn as well. In those circumstances, repeat customers are likely to keep your brand afloat. After all, it can be up to 5x cheaper to retain an existing customer than to acquire a new one, and offers help keep customers around. As such, discounting is an excellent way to improve retention and decrease Customer Acquisition Cost (CAC).

What Should You Avoid When Discounting?

If you run discounts too often, customers might never buy from you full price and may even see your brand as being low quality. And when you extend mass discounts that anyone and everyone can use, your offer might get lost in a sea of sales. Plus, you may only attract bargain hunters who won’t convert into loyal customers. To counteract this problem, you can aim your discounts at certain groups of people who share a common identity-based attribute, such as their job or their age. Be sure to think strategically and pick groups that are an excellent fit for your brand. For example, a furniture brand might provide discounts for new movers, knowing that these consumers will be making a lot of purchases for their house.

Another huge discounting pitfall? Fraud. For gated offers, discount fraud can be as high as 35%. Discount abuse can wreak havoc on your discounting strategies, cutting into sales margins and causing customers to worry that their data isn’t safe with you. And data privacy is a big deal right now; a recent study found that 70% of consumers would stop doing business with a brand that gave away their private data. To combat fraud, your brand should work with a trusted verification partner who draws from authoritative sources. Verification will ensure only eligible customers can redeem your offer and will alert you if anything looks suspicious. By providing fast, effective verification, you put customers’ minds at ease and reduce buying friction.

10 Types of Discounts and How to Implement Them

With so many possible discounts out there, choosing one might seem overwhelming at first. Remember, you are not limited to a single price discount strategy, and you can mix and match these techniques to your heart’s content. Here are some types of discounts that we find to be most successful:

Percentage Discounts

Here, you offer a specific percentage—say, 20%—of all or some of your inventory. This discount could be sitewide for any shoppers or for specific groups, such as 15% off for teachers. You can also set other criteria for getting a percentage discount, such as offering it only to loyalty members or requiring visitors to purchase a certain dollar amount before they get the deal. These discounts are often more effective than a static dollar amount discount since customers tend to view them as more valuable, even if the savings is about the same.

Buy One, Get One Free

BOGO discounts are a popular way to encourage customers to buy more than one item. Who doesn’t love free stuff? Usually, the free item needs to be the same product as the other or of equal or lesser value. Another benefit of this tactic is that it helps you get rid of inventory that you might be phasing out or that might not be selling well.

Free Shipping

Online brands can give some or all customers free shipping with their purchase. Again, this might be dependent on factors such as the customer’s loyalty member status, the value of their order, or when they placed the order. Just be strategic to avoid losing money. Setting a minimum order amount or limiting the deal to domestic orders are some ways to ensure you aren’t burning money with free shipping.

Multi-Buys

This gives customers a discount when they purchase a certain number of qualifying products. Since this requires bulk buying, it is best used for products that people might reasonably buy multiple of, such as clothing or cosmetics. Multi-buy discounts are another good way to sell off excess inventory.

Try Before You Buy

With this technique, customers get samples of products for free or at a discounted rate so they can decide if they want a full size. It may include a voucher for a full size product. This is good for products such as makeup, cleaning products, and food. Alternatively, it may allow you to test out a product, such as a mattress or an item of clothing, for a certain amount of time with the option to send it back if you don’t like it.

Gift with Purchase

Customers love it when they receive a free gift with their purchase. To make this cost-effective, you can limit who is eligible for a free gift. For example, Sephora gives Beauty Insider members two free samples with every purchase. You can also offer free gifts when customers place orders of a certain value or give gifts for occasions such as birthdays.

Loyalty Reward Discounts

Loyalty programs are a great way to keep customers engaged and buying from you. There should be tempting incentives for loyalty members, including special deals, early access to new releases, or a point system that allows customers to cash in points for discounts.

Seasonal Discounts

You can use these types of discounts to celebrate certain holidays and recognize those being honored. For example, you could run a military discount during Military Appreciation Month or an educator discount for back-to-school. This tactic not only encourages customers to buy but also shows that you care.

Referral Discounts

It’s smart to encourage word-of-mouth sharing as much as possible, and one way to do that is by offering a referral discount. Here, if someone refers a friend to your brand and that friend makes a purchase, one or both parties get a discount. It’s a win-win for everyone involved, as customers get to buy for less and you get a boost in brand awareness and traffic.

Identity Marketing Discounts

This strategy uses gated offers geared specifically towards certain communities that share core attributes, such as healthcare workers or students. People in these groups identify highly with this community, so recognizing their identity makes them feel appreciated. For instance, 66% of healthcare workers say that personalized discounts make them feel valued. This can help form a positive brand relationship and encourages loyalty. And because these communities are so tight-knit, word-of-mouth is strong; over 90% of nurses, students, and teachers would share an offer with others they knew were eligible for it.

To prevent discount abuse, have customers verify their identity via a digital verification platform. This will ensure that only eligible customers can redeem it. As an added bonus, your brand can gather zero-party data you can use for re-engagement and personalization.

Making Discounting Work for Your Brand

The types of discounts you can offer heavily depend on what you sell and to whom. But every brand will benefit from exclusive discounts designed for the consumer communities that are most relevant and valuable for your company.

SheerID can help you find the best types of discounts for your brand so you can build a loyal customer base that will spread news of your offers within their circles. The SheerID Verification Platform provides instant offer verification, allowing you to reward your most valuable customers without worrying about fraud. That’s a deal we can all get behind.