How Much of a Discount is Too Much of a Discount?
Posted Oct 13, 2020
Discounts draw customers in, and should be an important component of any business strategy. In fact, a recent survey conducted by RetailMeNot found that two-thirds of consumers have made a purchase they weren’t originally planning to make solely based on finding a coupon or a discount. Similarly, 80% said they feel encouraged to make a first-time purchase with a brand that is new to them if they found an offer or discount.
In addition to selling more of specific products, discounts can help:
- Attract New and Repeat Customers: C-store customers are very price-driven; if you are able to consistently offer lower prices than competing stores, you’ll quickly become a neighborhood favorite
- Increased Sales Across the Board: Promotions are a proven tactic to increase market basket sizes. If customers feel like they’re getting a good deal, they are more likely to purchase additional items
- Boost your Reputation: The number one indicator of a positive shopping experience is price - and satisfied customers tend to share their experiences with others
Understanding which products to discount for the most return can be the difference between a successful promotion and one that just finds you, well, selling more product but not making any additional money. The other half of the equation is knowing how much to discount the product. And that’s where we can help.
We conducted an analysis of 5-hour ENERGY pricing to find the optimal discount range to maximize margins. The findings were a strong indicator of how important data is in driving promotional decisions! See below for a quick analysis of how this works.
- Modest discounts can increase transaction revenue for 5-hour ENERGY by as much as 20%.
- The bump in revenue is determined by the discount tier. Products that are discounted between 10-20% show a 7% increase in revenue and a 28% increase in unit sales.
- Discounting more than 20% has the potential to decrease revenue per transaction, especially for discounts over 50%, even with unit sales increasing compared to unit sales when items are discounted between 0-10%.