Percentages Or Pounds – What Is The Best Discount Pricing Strategy?
While they’re not the only tool you can deploy to win over new audiences, discounts and voucher codes are undoubtedly a key component of an effective affiliate marketing strategy. These incentives are great at encouraging conversions and boosting sales by giving your target audience a financial incentive to buy. However, there’s a lot more involved in offering discounts than simply deciding you want to give your customers a bit of money off.
To utilise a discount pricing strategy effectively, you need to think carefully about exactly how your incentives will work. Your discount pricing strategy must align with your business objectives, reinforce your brand image, and be financially sustainable. It’s no good giving away a proportion of your revenue if you can’t afford it, but you also need to get into the head of your customer and think about whether the way your discount is presented is appealing. Both percentage-based discounts and fixed monetary reductions can deliver success when used in the right way. But which of these is the best discount pricing strategy for your business? Read on as we break it down.
What Is A Discount Pricing Strategy?
A discount pricing strategy is a carefully considered approach to offering price reductions and maximising profitability. Discounts can be implemented to both retain existing customers and to win new ones, but this kind of strategy must always be implemented in line with wider business goals. For example, if your intention is to increase average order values, you’ll most likely use a different discount method than if you were to aim to clear excess stock. Understanding when and how to apply a discount pricing strategy is therefore crucial.
The Case For Offering A % Off
Two of the most commonly used discount pricing strategies are percentage-based discounts and fixed monetary discounts. Both can be highly valuable depending on what you’re aiming to achieve, so it’s important to understand what each method entails and when it can be effective.
Let’s start with the case for percentage-based discounts. These are discounts which give customers a fixed percentage off their purchase. This discount pricing strategy is particularly effective in the following circumstances:
Closed user groups
If you’re utilising a discount pricing strategy to incentivise closed user groups, offering a fixed percentage discount (e.g., 10% off) typically works really well. Whether granted to students or key workers, this type of approach builds brand loyalty and encourages repeat purchases, as these groups appreciate ongoing discounts that feel exclusive.
New customer incentives
A 10-20% first-order discount can really make the difference if your aim is to encourage first-time shoppers to convert. This type of percentage discount can be offered in a number of ways, including via homepage sign-ups and abandoned cart emails, and helps to reduce the barrier to entry for hesitant or shopping-around buyers.
Sales and shopping events
A discount pricing strategy is nearly a requirement to compete at certain times of year, like Black Friday and end-of-season periods. Percentage discounts can be particularly compelling at these times as they give customers a sense of urgency and help you to drive higher sales volumes at peak spending times.
However, there are some downsides too. A percentage discount can often end up costing you more than you might’ve expected, particularly if it’s offered without the requirement for a qualifying minimum spend. It’s also important to consider whether your customers may become accustomed to expecting discounts, as this can devalue your products and therefore shrink your margins over time.
Why £ Off Discounts Work
Fixed monetary discounts (£5 off, £10 off, etc.) offer a powerful alternative to the percentage-based approach, especially when structured strategically. There are a number of advantages when it comes to a fixed discount pricing strategy, including:
Tiered discounts and spending thresholds
Fixed monetary discounts are particularly effective when offered as part of a tiered approach, such as £5 off when you spend £50, £10 off when you spend £100. Approaching a discount pricing strategy in this way strongly encourages customers to spend more to unlock higher savings but does so while ensuring that your profile margins remain sustainable. It also gives your customers a psychological nudge to add just one more item to their basket to reach the next discount level.
Better value perception
It’s amazing how much perception makes a difference when it comes to discount pricing strategies. For example, a straight £10 discount is easily perceived as more substantial than 10% off. Take a £50 product as an example; a £5 discount on it feels considerably more significant than 10% off, even though they equate to the same value. This can make a fixed monetary discount a more effective tool for getting into the psyche of your customers.
Protects margins on high-value products
If you sell a number of high-value items, it’s likely that a fixed discount will be the most appropriate discount pricing strategy. Fixed discount amounts ensure that you don’t cut too deeply into profits, as opposed to a percentage discount that rapidly scales up with product price. For example, £20 off a £100 item is more predictable than offering 20% off and gives you more control if the customer opts for a more expensive item or adds extra products to the basket.
Ultimately, fixed discounts work particularly well when you have clear pricing tiers and want to control the exact amount of discount given. They may not be as effective at percentages as winning over hesitant shoppers, but they do enable you to offer incentives to customers without completely ripping up your margins.
Alternative Discount Pricing Strategy Options
While percentages and fixed amounts are the two most commonly deployed discount pricing strategies, there are still alternatives. If you’re still not convinced either is the right fit, you need not lose hope on offering a discount pricing strategy entirely. The following tactics may still enable you to offer value to customers while protecting profitability.
Buy One Get One Free
Though perhaps not as common as it once was, a BOGOF strategy is a classic promotional tool as it encourages bulk purchasing and gives your customers the perception of exceptional value. Careful planning is key to this type of discount strategy, as it essentially gives away products at no immediate gain. However, this makes BOGOF a great way to subtly promote complementary products or drive sales of less popular stock items.
Free gifts
Adding a free gift when customers spend a certain amount is a great way to both enhance the customer experience and build brand loyalty. This approach works particularly well because, unlike a direct discount, a free gift adds value without devaluing the original product. It also creates an added incentive for customers to increase their order value while introducing them to new products that may lead to re-purchases.
Bundle discounts
If you want to drive higher sales volumes, offering discounts on product bundles rather than individual items helps to encourage larger purchases. Bundling products together at a reduced price not only increases the perceived discount value but also moves multiple products in one purchase. Customers will typically feel like they are making a big saving, but it’s likely that this would only equate to a small percentage that would otherwise not be particularly persuasive.
Fine-Tune Your Discount Pricing Strategy With Fuel
Which discount strategy to use, which partners to use it with, and when to deploy it is a difficult balance to strike. However, if you are looking for help, we are here to lend a hand. Whether you want support on an existing programme or help getting up and running in the affiliate channel, please reach out to the team here at Fuel and we will be delighted to help.
