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The secret discounting method that increases revenue and improves brand

(Source: Supplied.)

What’s more effective than enticing a customer with a generic discount? The answer: a discount is almost guaranteed to result in an extra, bigger purchase. These are behavioural-based discounts. 

Most online stores don’t discount this way – they spray and then pray for higher sales. Many stores discount based on stock costs or perceived customer value. This results in an addiction to discounting where customers are conditioned to only purchase with a discount. 

Research conducted by Cherry Recommends showed that three-quarters of online stores run discounts. They include everything from a 10-per-cent off email sign up, clearance sales, category bundles and more. These one-size-fits-all discounts are a sugar hit to meet quarterly sales goals, but too many stores rely on them for most of their revenue. 

When running discounts, we know that most stores make educated guesses on the size, structure, timing, and prevalence of a discount. Should it be 10 per cent or $10 off? Should everyone get the discount or just customers who’ve purchased within the last three months? Good stores have some heuristics to answer these questions, but they are inevitably speculating what their customers will do in the future.

But customer behaviour is hard to predict. They do weird, irrational, and unpredictable things. This is doubly so in the post-Covid, high inflation world we have today.

Over time, customers learn and adapt to the discounts that stores provide. 

The result? Their effectiveness decreases because customers change their buying behaviour. More than half of consumers bought their last piece of clothing at a discount. These shoppers know to wait for mass discount offers before paying for what is in their cart. 

The secret to better discounting

The good news is that stores can increase revenue by up to 24 per cent by delivering better discounts. Instead of simply guessing, they can discount based on behaviour. 

Setting discounts by what a customer did before and after seeing a discount, is called behavioural-based discounting. Instead of a store manager or marketer guessing what a customer will do, software measures what a customer actually does and adjusts accordingly. 

Anyone who has been to an overseas market has experienced it. The opening price the owner gives you is based on your clothes, age, and companions. You start haggling. They drop the price, but you think you can get more. You walk away, and they give you a bigger discount to close the sale. The store owner is analysing your behaviour and discounting accordingly.

It’s easy to use behavioural-based discounting

E-commerce managers can utilise the wealth of customer data in a manner that hasn’t been possible before. They can send far more specific, targeted discounts to customers than traditional retailers.

There are three simple steps to discounting based on behaviour.

1. Try out different discounts, not just one.

2. Link customer behaviour to discounts.

3. Analyse less and experiment more.

E-commerce managers should try out different discounts to learn as much as possible from their customers. In economic terms, they’re creating a price-sensitivity curve that they can use to maximise revenue or profit.

 E-commerce managers need to monitor customer behavioural attributes and how that links or converts to various discounts. Patterns of interest could be previous purchase behaviour, the number of website visits, acquisition channel or geography. Great software tools exist to automate this.

E-commerce managers need to focus less on analysing ideal customers and perceived value, and more on real customers and actual value. By consistently experimenting and updating discounts, they can always adapt to their customers’ behaviour and be one step ahead. 

Switching to behavioural-based discounting is easy, delivers up to 24 per cent of extra revenue, and you can do it today. 

See how much you can increase your revenue with behavioural-based discounting with this free calculator.

About Cherry: Cherry is trusted by leading online stores and D2C brands such as Vitable, Mosh, and BigSofti, to deliver targeted promotions that increase revenue. Our AI tool is unparalleled and easily plugs into most online stores. Cherry delivers you more sales or you don’t pay.