Every European retailer needs to find a balance between fielding discounts to increase sales and ensuring they maintain acceptable margins in the long run. For retailers focused on a single market in EMEA, that can be challenging. For brands competing across Europe, in markets as diverse as Germany and Albania, the challenge is even greater
Some Europeans express their price sensitivity by shopping in the 40,000+ “hard discounter” retail stores (e.g., Aldi, Lidl) in the region. Others purchase lots of private label items – in key markets like Britain and Germany, private label goods account for more than 40% of their category sales. Still, others use discounts obtained online or carefully compare prices before clicking to buy.
But discounting needn’t be a race to the bottom for European merchants. The key to getting pricing and discounting right is to get creative. Here are seven ways to discount smarter.
1. Focus on value
Products and brands give pricing meaning. Most shoppers don’t simply seek the absolute lowest prices in a category; rather they seek the best possible price for goods they perceive to have great value. A modest discount on a great brand can far out deliver rock-bottom pricing on a commodity product. As you formulate your discounting programs, keep your focus on communicating value rather than the absolute deepest discount or lowest price in a category.
2. Capture hearts as well as minds
There are lots of different ways to communicate a discount. Take 33% off on a €30 item, for example. You could say 33% off, 1/3 off, buy two get one free, €10 off, or any of a host of other ways to express the discount. Get creative with how you present the information. In the US, for example, research shows that Buy One/Get One Free almost always out pulls 50% off.
Why? Intuitively, a 50% discount on one item should drive a lower total bill than getting two items for twice the cash outlay. But that’s not what happens. It’s been suggested that the reason for this is that free goods simply feel more exciting, or that the value is more tangible. Whatever the reason, retailers in all regions must recognise that shopping is an emotional experience as well as a rational one. By getting creative you may identify the key to exciting shoppers into clicking the buy button.
3. Leverage loyalty rewards programs and cash rebate communities
Many European retailers have extensive loyalty marketing clubs in place. Additionally, tens of millions of Europeans visit cashback websites whenever they are ready to make purchases, looking to see who will give them a rebate on their next purchase. Data for leading European retailers that we see in our platform reveals that small percentage cashback offers (e.g., less than 10%) can drive strong sales increases with or without other discounts in place.
Again, credit the emotional value of a cashback discount “feeling bigger” than a small percentage off in the price of an item. Cashback lovers love receiving a big quarterly rebate.
4. Get the broadest possible distribution for your offers
People can’t react to your sale if they don’t know about it. One great way to grow the total number of people who see and respond to an offer is to leverage performance-based partners who get compensated for the traffic and sales that they drive to your promotion.
They spread the word of your offers and you pay only when those efforts result in transactions. Such programs are a cornerstone of digital retail marketing for both online and brick and mortar stores.
5. Focus discounts on higher-margin, higher-priced items
Recently, we worked with a retailer that had a modest average order value (~€43) and margin challenges due to a slow escalation of discounts required to drive revenue growth. They dramatically boosted revenue for their promotions by offering a combination of an escalating discount and a deal floor just above their average order value.
By offering a 20% discount for purchases over €50 and 35% for purchases over €100, they drove a 45% uplift in revenue and reduced average discount by about 12%. Early signs also indicate that the buyers attracted by this program are more loyal than the company’s average shopper.
6. Work with content publishers and influencers
One of the best ways to find less price-sensitive customers is to work with content creators that focus on features other than price. For example, an apparel company could offer a small discount code to a fashion blogger that gets a great response from buyers who get excited about a look.
Programs like this help grow the earlier stages of your buyer journey, with small discounts encouraging people to act now and get items that might not be actively shopping for before reading the content. Across retailers, we see smaller average discounts applied from content publishers than from comparison and other price-focused digital properties. It’s about getting the right mix of partners here – greater margins from the content side, big volume from discount partners.
7. Remember the in-store experience and mobile
Mobile retail use cases are often different from those for the PC web. On-the-go shoppers may be more likely to accept a “good” offer versus relentlessly hunting the biggest possible discount. Conversely, you may be able to capture sales that would go to other brick-and-mortar retailers with strong mobile experience and a decent discount. With 67% of European retail traffic now coming through mobile, it’s clear that getting the mobile experience right is critical, with or without discounts in place.
In short, discounts are a fact of life, but they needn’t contribute to the death of your profits. With the right strategy and some creative thinking, you can get the growth you need at selling prices you can afford.