• by Andy Cutler , April 16, 2009

Companies use discount offers to drive top line sales and revenue but can end up sacrificing profit and then, stock price -- not the result senior management wants to see.

It's especially tempting to discount heavily now in an economic downturn, but rethinking how you discount can limit profit erosion and improve offer conversion. Here are four ways to turn it around and make your discounting cost less and sell more.

1. Make Insight-Guided Offers

You can start to differentiate between customers by looking at the percentage of total items they purchased at a discount. The next step up is to evaluate responsiveness to communications with a discount vs. those without.

After that evaluation, you can experiment by replacing discount offers with more relevant product (full price) offers for those customers who appear to be less sensitive to discounts. Gradually, you will discover the right mix of discount and non-discount oriented offers, letting you communicate on-target, cost-effectively.

2. Separate Clippers from Jumpers

You need to appreciate that customers have different levels of sensitivity to discounts. Some buy mostly at full price (impulse buyers) -- jumping at the product you offer without much concern for your discount. Some are "coupon clippers" who will almost never buy without a discount offer (but they will buy things they don't really want or need with a strong discount -- great targets for clearing merchandise).

The point here is that you need to differentiate between these two types of buyers and you can probably reduce the number of discount offers you make to impulse buyers -- and save significant money in the process.

3. Serve It Their Way

Make your offers consistent with customer shopping preferences. For example, if they like to buy in a store, your offer should emphasize store location and convenience in addition to the discount. And, even though you might prefer for them to purchase online, making them an offer for free shipping if they purchase online is not likely to work.

4. First, Find Out Why

Try to understand motivators and de-motivators for specific customers. For example, you probably have a large number of customers who have abandoned online shopping carts multiple times. They may be hesitating to complete the purchase because they just can't stomach the shipping charges. You should test free shipping for these people instead of discounting the product. It just might increase your conversion rate.

Over time, increased customer insight can deliver a lot more value -- and loyalty -- to your organization than price-slashing. But when it is time to drop the price, those insights can reveal valuable differences between your customers so that you can reach them effectively and discount profitably.

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