We dug into our data to see how our sellers use discounts
ft more products, and you can take advantage of seasonal trends (Black Friday anyone?).
However, it can be hard to work out what discounting strategy will work best for you. We appreciate your pain. So we've looked at all the relevant SendOwl data since January 2015 to spot key trends in terms of: How much should I discount? and Should I offer a percent or fixed price discount?.
How much should I discount?
Our main finding is that there are three sweet spots for discounts: 20%, 33% and 50%. These discounting strategies resulted in the maximum number of orders.
As you can see, the general trend is for discounts to gradually attract more orders as they get closer to 20%, before falling back again.
The big outlier is the 50% category.
Half price? Heck, yes!
The 50% discount had the edge in terms of total number of orders, which may seem surprising. However, the customer sees this level of discount as a tremendous deal. For the seller, it's also not a bad deal, especially for digital products which have almost no extra cost per unit. Once you've made a digital product you're done. So all extra sales are pretty much pure profit.
Offering a big discount (like 50%) can work really well for sudden time-limited sales. For example, you send out a tweet and say: "All products 50% – but only until midnight tonight". A big discount works really well with the sense of urgency conveyed by the tight deadline.
One thing we found interesting is that further discounting seems to have limited returns. There's a little order spike at 75% discounted, but otherwise orders fall off as discounts approach the 99% mark.
If you discount too heavily your customers might begin to question the value of your product, so don't send the wrong signals. Digital products are intangible and rely on you communicating their value effectively to your customer (who can't hold your product in their hand, drive it or try it on). If you discount too hard you might drive quality customers away.
20% off. Why not?
Coming in a close second is the 20% discount category. This makes sense. 20% off has a nice ring to it. Customers can work out how much they are saving in real terms. It's a good discount without being incredibly generous.
To a certain extent, the same is true of the slightly less popular 33% category. Most customers can work out a third off without getting brain ache. It's a tempting discount without being wild. You still make a decent amount of profit.
Should I offer a percent or fixed price discount?
Our data shows that 61% of orders came from a % discount and only 39% from a fixed price discount.
So percent discounts seem to work the best for the majority of our sellers.
This broadly correlates with other research on pricing.
Wharton Marketing Professor Jonah Berger, says in a Business Insider article that savvy retailers will use "the rule of 100" to price their products.
The idea is that a $20 shirt is more appealing at 25 percent off versus $5 off, but a higher-priced item, say a $2,000 laptop, is more attractive marked down $500 versus 25 percent off.
This research builds on behavioral econ theories by psychologists such as Kahneman and Tversky.
How often should I discount?
We don't have any research on this at the moment. However, we suggest you track not only how many orders you get from a discount marketing campaign, but also, if you can, whether those buyers further engage with your company.
Customers who buy because of a discount may not value your product as much as customer who pays full price. So these discount-only buyers may be of less value to your company long-term.
Frequent sales may also deter your customers from paying full price, because their perception of your product's value decreases. Plus, they figure, "why buy now when I can probably buy at a 50% discount in a few months?""
So, test your discount marketing campaigns to make sure discounting works for your company.
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