Episode 16: Discounting for Conversion Rates
So many Ecommerce stores offer discounts. Should you? Today Jon breaks down why discounts are probably doing more harm than good for your brand, and offers some better alternatives. The Essential Guide to Ecommerce Sales Promotions [78 Tactics] : https://thegood.com/insights/essential-ecommerce-promotion-guide/ TRANSCRIPT: Ryan Garrow: Jon, I come across this all the time, and I found myself accidentally suggesting these things to maybe my wife's business or some friend's businesses. When it comes to conversion rates on websites, one of the easiest ways to increase an e-commerce site's sales rate is to offer discounts on products or site-wide. I see it all the time, and I know you have your favorite email popups for 10% discounts and your Reelio spin for discounts on every Shopify site on the planet two years ago. When you see all these discounts out there, it gets stuck in the back of all these e-commerce marketer's minds that it must be a good thing to do. And I think some companies get addicted to it. In fact, one of my wife's favorite stores is Michaels, it's a craft store, and I get the wonderful job of picking up her orders on the way home from the office. And as I'm looking at these receipts, as I'm picking it up, there is not an order she puts in online for store pickup that doesn't have some crazy discount codes. It's at least 40% on every order that Michaels is giving away on these orders. And that blows me away how they must have a lot of false front on their pricing to be able to do that and that limits what they can do outside of direct consumer marketing like in Google Ads or things like that. But Jon, technically these discounts increase conversion rates and may, in fact, be increasing new-to-file customers in their database. Given those two metrics, why does a brand need to be careful if they're using discounts on their site? Jon MacDonald: Well, I think there's a couple of things to be thinking about here, first of which is that discounting is not conversion optimization. It's margin drain. These brands who are engaging in discounting, what they're really setting themselves up for is to always be a discount brand in the eyes of their consumers. And just like you're saying with Michaels, your wife is never going to pay retail price at Michaels. She always knows there's a discount code or some special that they're running. Once you dig that hole, it's so hard to climb out of it. It really just becomes impossible. Once you're a discount brand in the eyes of the consumer, you forever are going to be a discount brand. It's just not something that you can easily really recover from. And I think a good way to think about this is the real estate market. A good realtor will tell you, or almost any realtor will tell you, that every house on the block, no matter how ugly, will sell at the right price. And so my point of view on this is that if you have to discount that severely, you likely just have a pricing problem or you have a product problem. And most people try to solve those by just severely discounting, or what they try to do is to get those new-to-file customers in by offering an initial discount. And those just become really, really complicated to recover from. Ryan Garrow: Now, are you saying that 10% sales or sales throughout the year are bad across the board, or does it occasionally make sense to have a sale of some sort? Jon MacDonald: Well, let's talk about what sales are, because I think there's a ton of ways to drive e-commerce revenue without using discounts. A sale could be anything that is different than just a discount, right? So you could do different types of promotions. So you could do buy one, get one. In essence, you're basically giving somebody a free product, but you're not calling it a percent off. You could say something like buy three of these, you get the fourth free, something like that. And that also helps you get your average order value up. And yes, you end up eating some margin there. It's a psychological shift from offering a dollar or a percentage off and instead, helping you to look at other metrics. Same thing with something like free gift with purchase, right? So if you purchase something... You could always say, "Buy this and we'll give you X product for free," or you could say something like, "If you spend X dollars, you get this product for free." There are other ways to do that. I mean, you could do free shipping, which is essentially a discount. I mean, it's almost an expectation anymore in e-commerce, but it could be looked at as a discount, or you could even do if you spend over $50, you get the free shipping. You could look at free returns. I think a lot of people are interested in making sure that they can return their item without having a charge there. This list could go on and on, and you could do loyalty programs. You could do urgency by saying there's limited quantities. You could give a money back guarantee or some type of service guar...