Back to Basics: Why Offer a Discount?

Discounts can get a bad rap, conjuring images of undesirable excess inventory or training shoppers to wait for a sale. But when approached with thoughtful strategy and intention, offering a discount can drive customer acquisition, foster long-term customer loyalty, and improve customer lifetime value.

In this article, we’ll apply a strategic lens to some back-to-basic concepts: when discounting makes sense, which discounting strategies to use (and which to avoid), and how to nurture customer relationships through meaningful offers.

(Note: This article was originally published in 2013, and while we’ve updated it to reflect changes in best practices and market trends, the need for segmented discounts remains highly relevant.)

Advantages of Offering Discounts to Customers

Customers love discounts for obvious reasons—they save money and feel like a savvy shopper. But the ways brands benefit from providing those discounts are a little more nuanced. Here are five advantages of offering a discount: 

Drive Website Traffic

When you promote a special offer on social media, email, display ads, or through referrals, you’re almost certain to drive additional traffic to your website—which can mean more sales, more leads, and more visibility for your brand. 

Make the most of that traffic by creating a special landing page tailored to the audience you’re targeting with your discount. Use relevant messaging and content to connect with them, and try to provide value beyond the discount itself. Consider how you can encourage email signups, content downloads, or other behaviors that will help build a lasting brand relationship with your new customers. 

Attract New Customers

The customer acquisition process starts with building awareness and interest, and discounts are a proven way to do just that. Consumers are attracted by discounts and tend to share them via word-of-mouth—an efficient way to reach new customers while keeping customer acquisition costs in check. 

For example, Vail Resorts launched a special discounted annual pass for military members in 2018. Through extensive promotion, media coverage, and word-of-mouth, the hospitality brand saw massive success with a 50% increase in new customer acquisition. 

Meet Sales Goals

While the discounted items and services you offer are generally the ones that will garner the greatest sales, the increased traffic to your store or site means that other products also enter customers’ awareness and become potential purchases. In other words, the increased traffic for one item may lead to other purchases during the same shopping trip or site visit.

Engage Existing Customers

Discounts aren’t just about acquisition; they also keep your current customers engaged and happy with your brand. Offering special pricing is a way to build brand loyalty by creating positive moments of appreciation and value. And that’s good for the bottom line, because happy, repeat customers tend to spend more and have a higher customer lifetime value (CLV). 

When sunglass brand Shady Ray’s began offering exclusive discounts for members of the military, healthcare workers, and students, it saw 5x higher engagement with those audiences and 3x repeat purchases. 

Boost Your Brand Reputation

Strategic discounts can actually improve your image and brand reputation, especially when your offer is tied to a cause or community your larger audience cares about. 

In the early days of the COVID-19 pandemic, shoe brand Rothy’s provided a discount for medical personnel and donated 100,000 masks to frontline workers in need of PPE. Rothy’s also expanded its usual teacher discount from 15% to 20% to show appreciation for educators dealing with school closures and online learning. The brand not only reached a new audience, but garnered positive press and goodwill by supporting hard-hit consumer communities during a time of crisis. 

Finding the Right Discount Strategies

When developing a special offer, the question isn’t just “Why offer a discount?” but “Which discounting strategy should I use?”. Once you know the goals of your discount program—in other words, which of the benefits described above are most important to your business—you can evaluate and choose the right approach. Here are a few discounting strategies to consider:

Seasonal Discounts

Every November and December, businesses spend billions of dollars on promotions. But seasonal discounts aren’t just about the holidays—many brands see a big jump during other occasions like back-to-school, Halloween, Mother’s Day, end-of-season sales, and other times that trigger massive collective spending. 

In one respect, this is an opportunity. Offering seasonal discounts can be a way to draw in consumers who have been trained to expect and keep a lookout for discounts during certain times of the year (such as white sales on bedding and bath items in January). This means seasonal sales can be an effective discounting strategy for driving traffic and meeting sales goals. 

But, you can also be more strategic about using seasonal discounts to build consumer loyalty and improve your brand reputation by extending targeted offers to specific communities at special times of the year. 

Target generates national headlines and drives sales with its annual back-to-school discount for teachers, who can receive a 15% discount on classroom supplies in late July. The retail giant has offered a similar discount for the military community on Veterans Day. In both instances, Target is celebrating these respected communities during the seasons or holidays that matter most to them. 

Referral Programs

Asking your existing customers to refer new ones in exchange for a discount can be an effective way to drive customer acquisition while increasing loyalty. You can provide a discount to your current customers, to your new customer, or better yet, to both—known as a double-sided referral program. 

Shoe brand Birdies uses a double-sided referral incentive to drive sales: customers referred by a friend get $20 off their first order, and the referring customer also gets $20 off their next purchase. Everyone wins, including Birdie’s bottom line. 

Bundles

Bundling related items together at a reduced price can help meet sales goals and engage existing customers. If a customer is already planning to buy one item, showing them a bundle can increase their total purchase and introduce them to new products they’re likely to enjoy. 

For example, beauty and lifestyle brand Glossier bundles eyeliner and mascara, sunscreen and lip balm, and mini sizes of its most popular skincare products—then includes a featured link to the bundle on each individual item’s listing, with headlines encouraging customers to save more by buying more.

Identity Marketing/Personalized Discounts

With identity marketing, you extend a personalized offer exclusively to members of a specific consumer community, such as students, teachers, or the military. Personalized discounts are incredibly effective at building customer loyalty, driving new customer acquisition, improving your brand reputation, and engaging existing customers.

Identity marketing is a powerful tool for your marketing arsenal. When consumers receive a discount that’s tied to who they are or what they do, it creates an emotional connection and lays the foundation for ongoing marketing and engagement with targeted messaging over time (like on seasonal holidays that matter to each community). And these consumers are highly likely to share a personalized offer with other teachers (98%), military members (96%), or students (97%). 

For example: 

• ASICS increased conversions by 100% and increased average order value by $12 through its identity marketing program  
• Comcast saw a 6x increase in subscriptions and 91% increase in conversions with its Xfinity student offer
• Headspace brought in 25k new subscribers with its personalized offer for teachers 

When done correctly, personalized offers and discounts can be among the most secure and protected from abuse. Digital identity verification technology, such as SheerID, can ensure only eligible consumers are able to redeem your offer. This allows you to extend more generous discounts and promote them widely, showing your brand’s support for respected communities while driving customer acquisition and sales. 

Loyalty Programs

If driving engagement with existing customers is important to your brand, consider a customer loyalty program. Customers can earn incentives like discounted prices, free shipping, or other benefits that reward repeat purchases or higher spending. 

You can also layer other kinds of retail discounts into your loyalty program, such as promoting exclusive bundles for members, awarding bonus points for referrals, or extending personalized offers within your loyalty platform. For example, when craft retailer Michaels integrated its personalized offers directly into its Michaels Rewards program, the brand verified 200,000 seniors, teachers, and military customers who were eligible for a 15% discount.

What to Avoid When Launching a Discount

Not all discounts are created equal, and without the right strategy in place, you could put your brand’s profits or reputation at risk. Here’s what to consider avoiding when launching a discount. 

Frequent Discounts for All Audiences

When you offer a mass discount for everyone, you risk adding to the noise in a crowded market and drowning out your brand’s own voice. And if you promote discounts too often, you can erode your brand’s perceived value and train your customers to wait for your next sale instead of making regular purchases at regular prices. 

Appealing to Customers Who Aren’t Your Ideal Audience

Discounts can make customer acquisition numbers increase—but are you reaching your ideal audience with your offers? The wrong discounting strategy can attract bargain hunters who only shop for deals (or harvest online coupon codes). These new shoppers may inflate your short-term sales numbers, but aren’t likely to become long-term customers or build loyalty over time. 

Lost Revenue or Discount Abuse

If your discounts are unsustainably high, you risk eating into your margins and creating more problems than benefits. This can happen when your discounts are mass-marketed instead of targeted to a specific, ideal audience. And if your offer is intended for a consumer community, you need to protect it with effective verification techniques that keep your discount safe from fraud. 

As a rule of thumb, if you’re afraid to promote your offer due to fear of overuse or abuse, something’s wrong. For example, nonprofit education organization CompTIA saw its student discount vouchers being purchased by a syndicate through fake .edu addresses and resold to non-students, leading to lost revenue. Replacing unreliable email verification with SheerID’s verification platform reduced fraud by 20% and gave CompTIA the confidence to promote its student offer more widely.