eCommerce Glossary: Discount Rate

Glossary

Discount Rate: Everything you Need to Know

What Are Discount Rates?

Discounts are one of the easiest ways to gain customers and to promote your store or products. If you can come up with a lucrative discount rate and apply discount pricing strategies properly, then your business is bound to attract new customers and even hold on to old customers.

The percentage of the original price of a particular product that is discounted is known as the discount rate. Therefore, the discount rate in sales is usually given as a percent. For example, if a product is marked "20% off", the discount rate for the product is 20%.

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The calculation of the discount rate is quite simple. You will first have to find out the original price of the product and the discount amount. Now, the formula of the discount rate calculation is:

Discount rate (in percentage) = (Discount amount ÷ Original price) × 100

Customer-Focused Discounting

New Customer Discount: If a small discount rate or free shipping is offered (for e-commerce sites) to new customers, they will make a significant purchase to avail of that offer.

Abandoned Cart Engagement: Customers often browse through products and leave a few in their cart but do not complete a purchase. If a discount is offered to the cart value, they will likely come back and buy the items.

Referral Discount: This discount is for the long term, loyal customers. You can give a referral code that a customer will then give to friends and family. When the code is used, the long-term customer also gets a discount.

Subscription Discount: For e-commerce sites where people have to subscribe to your website or social media page, you can give a discount, which can be availed upon signing up.

Exit Intent Popups: When a customer is exiting your site without buying anything, a pop-up showing a discount rate can get them to make a purchase.

Value-Adding Discount: Value-adding offers are usually those that offer some gift or a discount on the delivery fee to regular customers. This motivates customers to buy something and get a gift.

Merchant Discount: E-commerce sites sometimes lose long-term buyers. A membership discount is offered to old customers to keep them interested and to make sure that they keep buying.

Quantity or Volume Discounts: These discounts are offered on items that are being bought in bulk. Customers will see that 3 items bought together cost less than what they would when bought separately.

Product-Focused Discount Pricing

Product in Decline: When the sales on a product start lessening, it means that the demand for the product is declining. A timely discount can bring up the sales, even if the profits are low, at least till you can bring out a new product.

Promotion of a New Product: When you launch a new product, if you offer a discount then that will attract more customers. You can also offer discounts or pre-orders.

Stock Clearance Discount: If you have old stock that you need to sell in order to make space for new products, stock clearance discounts are ideal. They can be given as flash sales or even "buy more, get more" offers.

Customer Psychology and Discount Rate

How to Choose a Discount Pricing Strategy?

Each discount pricing strategy affects each business differently. One particular strategy might work for a particular period of time, and after that, you might start to notice a plateau effect on your sales. Now, if you are selling various types of items, then the same discount pricing strategy might not work on all of them.

You will also have to decide on the discount rate for each, as that depends upon the cost and sale price of each product. When you select and apply a discount pricing strategy, make sure that the strategy is suitable for each product separately.

When you are fixing the discount rate of a product, it is important to understand what will appeal to customers.

Perception of product quality: Often, people consider costly products to be of better quality. Therefore, if you have a very high discount rate for a product that is perceived as a luxury item, customers might think that the quality is not that good and therefore, will not buy it.
Low availability of the product: If people notice a discount on a product that is not easily available, then they are more likely to buy it.
Classical conditioning: Give discounts after certain intervals of time. This will condition your buyers to wait and then buy in bulk when the prices are slashed, and during a particular period, your sales will be consistently high.
Social pressure and influence: A certain social pressure drives people to make purchases. When they can get a discount, they usually feel like they have made a smart purchase. This makes things better for your business because others will be influenced to buy the same product.
Savings: When you are giving a discount, show the original price and then the discount so that customers can compare and see how much they are saving. Customers respond well to absolute value discounts like "save $30," especially when the product costs more than $100.
Exclusivity: It is important to have a reason for each discount you are giving. The reason should also be relatable, and your customers will be able to realize that a discount is being given, exclusively at a certain time like an end-of-summer sale, back-to-school sale, or festival offers.

Discounts attract a lot of customers. If your discount rate is higher than that of a competitor for a particular product, it might get you many new customers. Once you fix a discount rate, you will also get the opportunity to offer upsells and cross-sells for several products. If you start giving discounts, you will be able to build up a good reputation that is bound to attract potential customers constantly, and not just while you are giving the discount.

While discount pricing, when done right, can boost your sales, it can also affect your profits adversely and hurt your brand image, especially if you do not use the right strategies. Therefore, you should research your potential customer base and get to know your existing customers to understand what discount strategy will work best. Once you can do that, you will generate significant revenue even when you are giving discounts.