Break the cycle of discounting to grow your business

Is your e-commerce business trapped in a cycle of deep discounts to drive revenue growth? If you're offering steep discounts and featuring them heavily, you're relying too much on discounts to excite customers about your brand. I saw this firsthand at Snapfish where we hyped promos to drive growth without focusing on solving customer problems. If I could travel back in time to my role there, I would follow the approach below that I recently shared with one company.

Loyal users are already hooked on discounts so it's tough to wean active users from discounts, but you can start pulling back from discounting with new users. You can prevent new users from ever developing a habit of expecting discounts by shielding them from heavy offers from day one.

Early lifecycle welcome and onboarding emails are a great place to anchor new users with pricing and discounting. For one brand, I observed how much they focus first impressions on discounts, rather than the company’s core value props. In fact, 6 of the 8 first emails they send new users focus on discounting!

I recommended to this brand that they experiment by reducing discounts to new users and then quantifying the impact to topline revenue, margin dollars, and overall conversion to first and second purchases. How? They should split new users into two groups: apply their current treatment to one group and apply a no-discount or low-discount treatment to the other group. Then this brand should track the short-term differences in conversion and the total revenue and margin $ from each group over several months. I hypothesized that the brand will generate more margin $ at the end of the period, although it might be from a slightly smaller customer base that is more engaged.

Once they validate the hypothesis, this brand can roll out the new treatment to 100% of new users not only in email but also through customized site/app messaging to this cohort. Their product category is rich with features and serves many occasions, so there is plenty of content they can share in emails to bring their value propositions to life.

By taking this approach, they may have to manage feedback from some new users who compare discount notes with older users. But they’ll drive better a discount profile over time as newer and newer user cohorts blend with their active user base.

What do you think about this approach? Let me know in the comments below!

Dan Reardon has propelled growth at DoorDash, Vudu, Nerdwallet, and Snapfish. 

Contact him at dreardon@gmail.com