Why discounts can hurt your eCommerce store

When trying to figure out a marketing strategy, the first thing that comes in mind is ‘Discounts’.

What percentage of your margin are you willing to give away to capture a customer to purchase. Do you even need to give away that margin in the first place?

 

The truth is, in this day and age, the eCommerce industry is saturated with discounts, discounts are saturating marketing strategies globally.

For an eCommerce store that is entering to a well-established industry, a discount strategy can be effective to capture new customers, boost sales, and gain market share.

 

Discounts can hurt your business in the long run

 

I mean, who doesn’t love discounts? Everyone does! But eCommerce stores hate them.

 

The discount strategy was once created to show love and support to loyal customers and in return, loyal customers will purchase your products at a discounted price.

But in 2020, it seems eCommerce stores only give without actually taking anything back from their customers.

 

Are discounts the only strategy to capture customers?

Here, we are going to explore why discounts are bad for your eCommerce store.

Zero Loyalty

 

Loyal customers spend 3x more than new customers and eCommerce stores are rushing to get them.

You would think that by giving discounts, your product will look more attractive and will capture more customers.

 

In the short run, it actually might be, but the downside is that your customers will not be loyal to your brand.

Research suggests that it takes at least 5 purchases for a customer to consider themselves loyal.

Assume that your eCommerce store X discounted product A to the price of $140.

 

Next week, eCommerce store Y sold the same product A and discounted it to $120.

You know how it goes, customers would rather purchase from eCommerce store Y.

From my personal experience, I have always used uber eats to dine at home. But the moment Deliveroo dropped their price under Uber Eats, I will switch my delivery app instantly.

Brand devaluation

 

Apple, Lamborghini and Louis Vuitton. What do you think about these brands? People would usually mention exclusive, expensive and high quality.

Why do you think we perceive that value? Surely not because they discount!

 

When an eCommerce store gives too many discounts, they are taking a big risk and devaluing their brand. In a sense, customers will get the impression that the products being sold are not worth the full price.

Fsrmagazine showed that the more discounts you provide, the more you reduce your customers willingness to pay.    

 

Instead, they will only purchase from your eCommerce store when discounts are in place.

Even when they need to buy your product, customers smart enough wait for the moment you send them an abandoned discount coupon code or try to find another eCommerce store that offers a lower price.

Price centric

 

Providing too much discount will make your eCommerce store primary focus on price rather than product value.

When the only competitive advantage that your eCommerce provides is price, your eCommerce store is in deep trouble.

 

Once a major competitor is able to price match your store, the only leverage to tweak is your profit margin.

At this point, the only business that can survive this competition are the ones that have the most financial support.

Decrease in product quality risks

 

While discounts were always expected by customers and price matching pressure from competitors is pressuring. The only way to survive is to decrease each product’s cost to recoup profits, which will usually lead to a decrease in product quality.

 

From my experience working for a food machinery business, intense price matching was played by other major competitors at that time. 

 

As a brand that still wants to compete in the market, we had to downgrade our spare part components to be able to compete in the market.

Lazy marketing

 

It feels really easy to just give discounts to encourage customers to purchase. This is why most eCommerce stores are using the same strategy. It is easy!

 

Creative marketing campaigns are time-consuming and require a certain amount of budget to spend.

 

If campaigns are successful, this strategy will be highly beneficial for your eCommerce store in the long run!

 

The campaign might be a video advertisement showing the value of your brand, and why your brand is positioned differently than your competitors.

 

Another strategy to provide value would be to use engagement platforms like a product recommendation engines to help your customers find the product.

On an occasion where you would need to create a new marketing campaign for your eCommerce store, try to step out of your discount comfort zone and place discounts as a last resort to your marketing strategy.

 

Other related topics that you might find interesting:

What is guided conversion and why all eCommerce managers should care

6 Reasons why guided conversion should be used in your eCommerce store

Why eCommerce product discovery sucks and how you can fix it!

Preezie's Product Recommendation Engines Explained - Filters vs Algorithms

 

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