Discounting can be a pivotal strategy for many eCommerce brands, serving as a powerful tool for both customer acquisition and retention. However, not all brands should approach discounting in the same way. The decision to discount and how to implement it effectively depends largely on the brand’s pricing position — whether it falls under Budget, Value, Premium, or Luxury.

This guide will explore which eCommerce brands should engage in discounting, how they should do so, and why some, particularly luxury brands, may need to steer clear.

The Importance of Discounting in eCommerce

In the competitive landscape of eCommerce, discounting can make a business. It can drive traffic, boost sales, and create customer loyalty. However, the effectiveness and viability of discounting varys depending on a brand’s positioning. While budget and value brands might rely heavily on discounting, premium brands must tread carefully. Luxury brands often need to avoid it altogether.

Understanding where your brand falls on the pricing spectrum is essential to crafting a discounting strategy that enhances, rather than undermines, your brand value.

Below we discuss the strategic use of discounting for different pricing positions, addressing common concerns and objections, and offering insights on how to integrate discounting into your broader marketing strategy.

Defining eCommerce Discounting

Before diving into specific strategies, it’s important to define what discounting means in the context of eCommerce. Discounting refers to offering products or services at a price lower than the regular retail price. This can be done for various reasons, such as clearing out inventory, acquiring new customers, or re-engaging lapsed customers.

In eCommerce, discounting is often used as a tactic to achieve one of two main goals: customer acquisition or customer retention.

Justifying Discounts: Why & How

Discounting in eCommerce should never be random. Consumers are savvy and may view discounts with suspicion if they seem unwarranted. To avoid this, discounts should always have a clear justification — such as a seasonal sale, a special occasion, or a new product launch. This gives customers a reason to believe that the discount is genuine, rather than a sign of desperation.

Moreover, discounts should be unpredictable. If customers can anticipate when your brand will offer discounts, they may delay purchases until the next sale, which can hurt your profit margins. By keeping your discount schedule varied and unexpected, you can maintain a sense of urgency and encourage customers to buy at full price.

Budget Brands: Strategic Discounting for Survival

For budget brands, discounting is not just a tactic; it’s often a necessity for survival. These brands operate with very slim profit margins, and as such, they must sell large quantities of products to remain profitable. Discounting can help budget brands achieve this by driving high volumes of sales, especially in the early stages of the business or when they need to protect or expand their market share.

The Role of Discounts in Budget Brands

Discounting for budget brands typically focuses on building brand awareness and scaling the customer base quickly. When a budget brand launches, it may use aggressive discounting to attract attention in a crowded market, making it easier to win over cost-conscious consumers. However, this strategy carries risks, as frequent discounts can erode already thin margins.

To mitigate these risks, budget brands should use discounts strategically. For example, offering discounts during key shopping seasons or in response to competitive pressures can help maintain sales volume without permanently lowering the perceived value of the brand.

Expert Opinion & Strategic Application

According to experts in retail strategy, budget brands need to leverage discounts as a growth tool but must do so with caution. Regular, deep discounts can train customers to expect lower prices, reducing the brand’s ability to sell at full price. Instead, discounts should be framed as limited-time offers or tied to specific events, such as a product launch or a holiday sale.

For a deeper understanding of how budget brands can balance discounting with profitability, refer to our in-depth guide on budget brand strategies.

Value Brands: Using Discounts for Growth

Value brands occupy a slightly higher position in the market, offering better quality or more features than budget brands, often at a slightly higher price point. While they have more flexibility in their pricing strategies, they must still be careful with how they use discounts to avoid undermining their value proposition.

Strategic Discounting for Acquisition and Retention

Value brands can benefit from discounting in several ways. Discounts can be used to attract new customers who are on the fence about trying the brand, as well as to re-engage customers who haven’t made a purchase in a while. However, value brands should ensure that their discounts are perceived as a reward rather than a necessity. This means offering discounts in a way that doesn’t cheapen the brand, such as through limited-time promotions or exclusive offers for loyal customers.

For example, a value brand might offer a discount to first-time customers as an incentive to try their product. This can be an effective way to overcome initial resistance and convert prospects into loyal customers. Additionally, value brands can use targeted discounts to win back inactive customers, offering them a reason to return without making discounts a regular expectation.

Expert Opinion & Strategic Application

Marketing experts suggest that value brands should use discounts as a tool for customer acquisition and retention but should avoid making discounts a central part of their pricing strategy. By offering discounts strategically, value brands can attract new customers and drive repeat business without eroding their brand value.

For more on how value brands can effectively use discounting, check out our comprehensive guide on value brand strategies.

Premium Brands: Balancing Discounts and Brand Integrity

Premium brands are characterised by higher prices and superior quality or exclusivity. For these brands, discounting can be a double-edged sword. While discounts can help premium brands stay competitive, especially in crowded markets, they also carry the risk of diluting the brand’s perceived value. Therefore, premium brands must approach discounting with extreme caution.

When and How Premium Brands Should Discount

Premium brands should generally avoid frequent or deep discounts. Instead, they can use discounting sparingly and strategically, focusing on times when it is most justified, such as during seasonal sales or to clear out old inventory. Another approach is to offer value-added incentives instead of direct discounts. For example, a premium brand might include a free gift with purchase or offer free shipping, which adds value without lowering the price.

When premium brands do offer discounts, it’s important to communicate the reason behind the discount clearly. This helps maintain the brand’s integrity and prevents customers from perceiving the discount as a sign of reduced quality or desperation.

Expert Opinion & Strategic Application

Industry experts in premium branding emphasise the importance of maintaining brand prestige while still being competitive. They suggest that premium brands should focus on enhancing the customer experience rather than reducing prices. When discounts are necessary, they should be framed as exclusive offers or tied to special events.

For more insights on how premium brands can navigate discounting, explore our detailed guide on premium brand strategies.

Luxury Brands: The Case Against Discounting

Luxury brands occupy the highest tier in the market, characterised by exclusivity, exceptional quality, and a prestigious reputation. For these brands, discounting is generally inadvisable as it can severely undermine the brand’s image and perceived value.

Why Luxury Brands Should Avoid Discounts

Luxury brands rely on maintaining an aura of exclusivity and rarity, which can be easily damaged by discounting. Offering discounts may lead consumers to question the brand’s luxury status, potentially eroding customer trust and diminishing the brand’s appeal. In the luxury market, full price is part of the allure; it reinforces the perception that the product is worth its high cost.

Instead of discounting, luxury brands should focus on other strategies to drive sales, such as creating limited-edition products, offering personalised services, or hosting exclusive events. These approaches help maintain the brand’s exclusivity while still engaging customers.

Expert Opinion & Strategic Application

Experts in luxury branding strongly advise against discounting for luxury brands. They argue that the strength of a luxury brand lies in its perceived value and exclusivity, which discounts can erode. Luxury brands should instead invest in building deeper customer relationships and enhancing the brand experience.

For further reading on luxury brand strategies, visit our in-depth article on luxury branding.

Addressing Common Objections to Discounting

Despite the potential benefits of discounting, many brands have concerns about its impact on profitability and brand perception. Below, we address two of the most common objections to discounting and provide strategies for mitigating these risks.

Objection 1: Discounting Cheapens the Brand

One common concern is that discounting cheapens the brand, making it difficult to sell products at full price in the future. This concern is valid, especially for brands that rely on their premium or luxury positioning. However, discounting doesn’t have to cheapen the brand if done strategically.

For example, offering a discount on a first-time eCommerce order is a great way for budget or value brands to introduce new customers to the brand without setting a precedent for future discounts. Similarly, offering discounts as part of a themed sale (e.g., a summer sale) or in celebration of an occasion (e.g., an anniversary) can create a sense of exclusivity around the discount, rather than making it seem like the brand is lowering its standards.

Objection 2: Discounting Reduces Profit Margins

Another common objection is that discounting reduces profit margins. While this is true in the short term, it’s important to consider the long-term value of acquiring and retaining customers. A well-executed discount strategy can increase the lifetime customer value (LCV), making the initial margin reduction worthwhile.

For example, a brand might offer a discount to acquire a new customer, knowing that their product quality and customer experience will encourage repeat purchases at full price. Over time, the profits from these repeat purchases can far outweigh the initial discount, resulting in a net gain for the brand. However, this approach requires a deep understanding of customer retention rates and lifetime value, which should be integrated into the broader marketing strategy.

Developing a Discounting Strategy That Works

Creating an effective discounting strategy involves tailoring your approach to your brand’s pricing position and overall business goals. Below are some key considerations for developing a strategy that works for your brand.

Tailoring Discounts to Your Brand’s Position

Each pricing position requires a different approach to discounting:

• Budget Brands: Use discounts to build brand awareness and scale quickly, but ensure that the discounts are strategic and tied to specific objectives, such as increasing market share.
• Value Brands: Offer discounts to attract new customers and re-engage inactive ones, but avoid undermining the brand’s value proposition by using discounts sparingly and strategically.
• Premium Brands: Be cautious with discounting, using it only when necessary, and consider value-added incentives as an alternative. When discounts are offered, they should be limited and tied to specific events or seasons.
• Luxury Brands: Generally, avoid discounting altogether. Instead, focus on maintaining exclusivity through limited editions, personalised services, and exclusive events.

Monitoring and Adjusting Your Strategy

Once a discounting strategy is in place, it’s crucial to monitor its effectiveness and make adjustments as needed. Key performance indicators (KPIs) such as conversion rates, average order value (AOV), and customer lifetime value (CLV) can provide insights into how well your discounting strategy is working. By analysing this data, you can refine your approach to ensure that it supports your long-term business goals.

Integrating Discounting into Broader Marketing Strategy

Discounting should never exist in a vacuum; it needs to be part of a broader marketing strategy that aligns with your brand’s goals and customer expectations.

Aligning Discounts with Marketing Goals

Discounting should support broader marketing objectives, such as increasing brand awareness, driving customer acquisition, or boosting customer retention. By aligning discounts with these goals, you can ensure that they contribute to the overall success of your marketing strategy. For example, if your goal is to increase customer retention, offering a discount to re-engage lapsed customers can be an effective tactic.

Leveraging Data to Optimise Discounts

Data analytics plays a crucial role in optimising discount strategies. By analysing customer behavior, purchasing patterns, and response to previous discounts, you can tailor future discounts to maximise their effectiveness. This data-driven approach ensures that your discounting strategy is not only effective but also sustainable in the long run.

Conclusion: Key Takeaways for eCommerce Brands

Discounting can be a powerful tool for eCommerce brands, but it needs to be used strategically to avoid damaging brand perception and profitability. For budget and value brands, discounting can drive growth and customer acquisition, while premium brands must use discounts sparingly to protect their brand integrity. Luxury brands, on the other hand, should generally avoid discounting to maintain their exclusivity and prestige.

By understanding your brand’s pricing position and tailoring your discounting strategy accordingly, you can leverage discounts to achieve your business goals without compromising your brand’s value. Remember, the key to successful discounting lies in strategic planning, data-driven decision-making, and a clear understanding of your customers’ needs and behaviors.

FAQs

1. Why should budget brands engage in discounting?

Budget brands often operate with slim profit margins and need to sell large volumes of products to remain profitable. Discounting helps build brand awareness and attract a larger customer base, especially in the early stages of business or when competing for market share.

2. How can value brands use discounts without undermining their value proposition?

Value brands should use discounts strategically, focusing on customer acquisition and retention. Offering discounts as limited-time promotions or exclusive offers for loyal customers helps maintain the brand’s perceived value while still leveraging the benefits of discounting.

3. What are the risks of discounting for premium brands?

For premium brands, discounting can dilute the brand’s perceived value and reduce its ability to command higher prices. To mitigate this risk, premium brands should use discounts sparingly and consider alternatives like value-added incentives or seasonal sales.

4. Why should luxury brands avoid discounting?

Luxury brands rely on maintaining an aura of exclusivity and high perceived value. Discounting can erode this exclusivity, leading to a diminished brand image and customer trust. Luxury brands should focus on other strategies, such as limited editions and personalised services, to drive sales.

5. How can discounting fit into a broader marketing strategy?

Discounting should align with broader marketing goals, such as customer acquisition, retention, and brand building. By integrating discounting into your overall marketing strategy, you can ensure that it contributes to long-term business success.

6. What’s the best way to measure the effectiveness of a discounting strategy?

Key metrics such as conversion rates, average order value, and customer lifetime value are essential for tracking the success of a discounting strategy. Regular analysis of these metrics allows brands to adjust their strategy and optimise it for better results.