12 Common Types of Discounts
Leveraging sales discounts in your retail or e-commerce business can help drive sales, attract new customers and encourage customer loyalty. There are dozens of discount types for every business that provide incentives for customers to buy your products. With so many options, narrowing down the appropriate discounts for your business is important to creating the most effective sales. In this article, we discuss 12 types of discounts and the benefits they offer to customers.
What are discounts?
Discounts are promotions that businesses offer to their customers that reduce the cost of items or services, often by a percentage or using specific criteria. For example, a store may offer a 50% discount on particular products. Businesses can use discounts to shed unwanted inventory, promote new items for sale or attract customers. These discounts also provide value to the customers, who may find it easier to make these purchases due to the lower prices.
12 discount types businesses can use
Discounts can encourage customers to buy more, talk about the business and continue using the brand's products and services. Here are 12 discount types used by retail and e-commerce businesses:
1. Buy one, get one free discounts
A buy-one-get-one-free discount, also called a BOGO discount, typically encourages customers to purchase two of the same item. Sometimes the free item is not the same as the featured item and represents a product of equal or lesser value. As part of this promotion, the customer receives one of the items for free.
This discount can help businesses move inventory and encourage customers to increase their order size. Customers may also perceive more value because they receive two items for the price of one. This discount type works for both retail and e-commerce settings, though sometimes e-commerce shoppers still pay a shipping fee on the free item.
2. Percentage sales
A percentage sale is discounts an item based on a percentage of its value. Businesses sometimes set percentage sales based on specific criteria. For example, a business may offer a 30% discount on purchases for customers who are members of its loyalty program. A business could also provide a 25% discount on orders when customers purchase three or more items.
The effectiveness of percentage sales may rely on customers' perceptions. People tend to view a percentage as being more valuable than a promotion with a static price attached. For example, saying an item is 50% off may sound like a more significant discount than saying it is $5 off, even if they amount to the same dollar value.
3. Early payment discounts
In some situations, businesses may offer early payment discounts to encourage customers to fulfill their payments within a specific period. An early payment discount may also encourage customers to avoid missing payments by giving them an incentive to pay before the due date. For example, a supplier may offer a discount on a buyer's purchase order if they agree to pay the invoice within 10 days rather than the 30-day final deadline. This discount type can also apply to customer retail credit cards, loyalty rewards programs and other paid subscription services.
4. Overstock sales
When a business holds a surplus of stock of a product, it creates a loss. When sitting on shelves, these products do not generate income and cost the business money while taking up storage space. Businesses often host an overstock sale to move inventory at a discounted price and recover some of those costs. While an overstock sale may not recover all of what the business spent on acquiring the products, it can help mitigate some losses from the additional stock.
Related: What Is Inventory Turnover?
5. Free shipping discounts
Businesses use free shipping discounts to encourage customers to make online purchases. These discounts help make the online shopping experience easier and less costly. Some brands put a minimum order cost or quantity threshold to help reduce the cost of free shipping. For example, you can offer free shipping only on orders over $50. This discount can also help businesses stay competitive. If a customer finds a product for the same price from two stores, the option that offers free shipping typically makes more financial sense for them.
6. Price bundling
Often used by phone and internet service providers, price bundling allows customers to bundle several services under the same plan for a discounted price. This discount often gives customers more services for a lower price, helping the business increase the number of people using multiple services.
Retail businesses can also use this discount method, sometimes called cross-selling. This technique motivates customers to purchase complementary items and increases their purchase quantity. For example, a store may sell laptops and accessories. It can offer customers a discount on a laptop case when they purchase a laptop.
7. Bulk or wholesale discounts
This discount type applies to customers who purchase items in bulk, often offered by wholesalers, manufacturers or suppliers. Wholesalers typically offer discounts based on a threshold of units included in the order. For example, a 10,000 unit purchase can carry a 10% discount on the total cost of the units. Some large retail and grocery businesses have created customer loyalty and subscription programs and offer bulk items at a discount for members.
8. Seasonal discounts
Businesses may offer seasonal discounts during slow periods for particular items. These discounts may cover items currently not in season or part of an upcoming sales season. For example, a clothing retailer may offer discounts on ski wear during the summer when fewer people typically make such purchases. Seasonal discounts allow customers to buy these seasonal items for next year at a lower price. Businesses often use the post-holiday season to offload excess inventory at a discounted price.
9. Referral discounts
Referral discounts offer customers an incentive each time they refer a new customer to the business. Existing customers receive a unique referral code that they can share with other people. This referral code may offer a two-way discount, with the new customer earning a discount on their first purchase and the referrer receiving discounts based on the number of customers they bring to the business. Businesses can use this discount method to drive organic traffic and create excitement or awareness about their offerings.
10. Loyalty program discounts
Loyalty programs that offer discounts encourage customer loyalty by providing benefits only members can get. The format of these programs can vary. For example, a business may reward customers with points when they interact with or purchase from them. When these customers reach a particular threshold of points, they may receive a discount code or offer.
Encouraging customers to continue supporting and engaging with the business can help boost their loyalty. This tactic may also utilize the concept of FOMO, or fear of missing out, by motivating new customers to sign up for these programs to receive such benefits. Businesses can also use loyalty programs to drive customers to their email funnel. These programs often require customers to provide information such as email addresses, phone numbers and credit card information.
11. Email subscription discounts
An email funnel is a marketing technique that drives customers to your website or brand by gaining leads through emails and email promotions. Offering a discounted product or service to a customer in exchange for signing up for the business' promotional emails or e-newsletters provides them tangible value. This method also works with cart abandonment, where a new customer puts their information in your checkout form and then abandons the sale. A follow-up email promotion may remind them to return to their cart and follow through with the purchase.
12. Trade-in credits
Businesses can offer trade-in credits when they release new versions of products, encouraging customers to bring in the old versions they own and purchase the new ones. For example, a business that sells smartphones may offer customers a $100 discount on a new model if they trade in a previous model. Trade-in credit programs provide used good retailers with either additional stock or give retailers recyclable materials to use in future products. Establishing recycling or upcycling programs through trade-in credits can also aid branding efforts, showing businesses' commitment to being ecologically friendly.
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