Imagine walking into a store for the first time and the sales associate says, “Welcome! Since you walked through the door, we’ll give you a fifteen percent discount.” That would certainly be an uncommon experience for a brick and mortar shop. By contrast, many ecommerce brands offer 10-20% off the first purchase. Why the disconnect? It’s an attempt at remedying the disconnect in shopper experience.
There’s one major difference between shopping in-store versus online: you can’t touch and feel the product through your web browser. Shoppers want to be confident that what they are buying is worth the price. In-store, that’s no problem. But online? Confidence is replaced with uncertainty, and they bail. That is why conversion rates in ecommerce are incredibly low (1-5%) compared to in-store (20-40%).
As an ecommerce brand, you’re looking at these low online conversion rates and asking, “How can we incentivize shoppers to make a purchase?”, and discounts seem like a reasonable solution. But what if you could build trust with a shopper, de-risk the purchase, and drive growth -- without having to discount?
In this article, we'll look at four signs your ecommerce store has outgrown discount codes, and address how to grow without them.
You might think providing discounts and promotions helps shoppers make a faster decision. In reality, this might slow down the time to purchase because shoppers are scouring the internet for the next coupon code. The more discount codes you have in circulation, the more difficult it is for shoppers to know if they’re really getting the best deal. Instead of purchasing with the discount code they have, they just wait longer to see if a better deal is around the corner. Of course, the time to purchase on a mattress is going to be much longer than time to purchase on a pair of shoes. However, if you get a sense that your average time to purchase is lengthening, your discount strategy may be the culprit.
Ask your customer support and social media teams if shoppers are writing in asking for discounts or when the next sale is coming up. If the answer is “yes,” your shopper might be conditioned to ask for a discount. If you give a shopper a sign-up discount, they’re going to want another and another. Look at the percentage of shoppers who check out with a discount. If it’s trending up, it means you're conditioning your shopper to seek out discounts. If you offer discounts at the top of the funnel (e.g., email sign-up or first-time shopper discounts), your existing customers will be even more discount hungry than new shoppers. They’ve been conditioned to expect to pay less than full price.
Most brands focus on AOV, Discounts, and Returns to measure performance, and Returns are often an easy target for improving the bottom line. We need to drive down our return rate to increase profit -- we hear this all the time. But have you considered the impact of reducing your discounts to $0? If Net AOV is hard to move, consider how every discounted purchase is eating away at your margins. Discounts are addictive, but there’s a whole world of profitability and scalable growth on the other side.
Rather than focusing just on the rate of return, what if we considered the root cause: why are shoppers returning items in the first place? Maybe the fit wasn’t right for their body type, or the feel of the fabric wasn’t as soft as they had in mind. If a shopper orders one item and then returns it, are they likely to shop with you again?
Let’s go back to the store -- how often do shoppers come to the counter and request to buy an item that they haven’t at least browsed for themselves and carried to the register? Rarely, if ever. They browse, they fill their cart, they touch and feel, they try on. They start with five, then narrow to two, and they’re confident they love those items. In your store, even a Goldilocks shopper will find something to love, but online, the first try might not be the one. What if you could get more product in the hands of your shoppers the first time they shop with your store online? What would it mean for you if AOV after returns increased by 20%?
Brands attempt to fix return rates by investing in tools designed to build shopper confidence: product photography, resizing items, fit-guides, and more. All this just to help Goldilocks feel confident that the one item she orders is exactly what she wants. But focusing on return rates means you might miss the opportunity to pull other levers that can drive greater impact, and be more cost-effective. Weaning off discounts takes less budget, more creativity, and can have a huge impact on your bottom line.
Most coupons are not automatically applied -- the shopper has to be aware of the offer, and take the added step of choosing to enter the code at checkout on eligible items. While you may be running one or more promotions in your online store right now, it's worth checking how many shoppers are actually applying discounts to their order. Orders checked-out at full price during a time period with an active promotion are a strong sign that you have shoppers who are ready and willing to try your brand and pay full price. This should give you confidence that you’ve built a great brand and you’ve likely outgrown discounting. Check your metrics -- it’s possible the path to a discount free life is even more attainable for your store!
Discounting is a continuous battle. One that is worth fighting if you want to build a profitable and durable brand. If any of the above points resonated with you, consider one of the following ideas to test the discount-less waters:
Imagine if you could increase the percentage of sales that come at full price. Your business would become more profitable and shoppers know you’re a premium shop that doesn’t offer discounts to everyone who walks in the door.
Competing on price is a race to the bottom, but because differentiation online is so challenging, discounting has seemed like the only option. Brands are leaving this race and rising to the top by differentiating with experience: they promise a world-class product, connect with shoppers on an emotional level, and deliver on this connection to meet the shoppers’ needs.
Think about the experience of someone walking into your virtual store. You can either be the shop that says, Welcome, we have amazing products, but we know you might not believe us, so here’s a discount...or the shop that says, Welcome, we have amazing products, see for yourself!