Which discount percentages drive the highest conversion rate?
The answer may not be what you think...
Discounting is an incredibly common strategy in virtually every industry
Need to boost sales? Send a discount!
Hands down, discounting is the most popular tool in a marketer's toolkit for increasing sales.
In fact, a study we recently conducted on over 28,000 eCommerce SMS messages and push notifications from retailers such as Macy's, Walmart, Amazon, and others, found that over 81% of these messages contained a discount, and these were the most popular discount amounts:
How do you pick the right discount amount?
As shown above, our internal research found that the most common discount amount offered was 50% (which is a little alarming, as Shopify noted that eCommerce net profits are typically only between 5-20% ).
This is why we need to be diligent when choosing discount amounts:
While discounting can drive more sales and revenue, it can have a damaging effect on profits.
Groupon is an excellent cautionary tale on the dangers of discounting:
“[With Groupon,] there was no way of guaranteeing that you weren’t cannibalizing your existing customers, giving a discount to people who would have bought from you anyway. There was no way to guarantee that the customers you attracted would ever come back without a discount. There was no effective way to limit the quantity of items you sold at a discount. Shops were driven into bankruptcy because Groupon sold thousands of items below cost. That’s crazy.” -Eric Clemons, Wharton professor of operations, information and decisions
Another study found that only a relatively low percentage of deal users, 35.9%, spent beyond the deal value, and just 20% returned for a full-price purchase. This correlates with our own customer research — Customers who come in on a discount seldom turn into our best customers
That said, we shouldn't give up on discounting entirely
While excessive discounting can be damaging, intelligent discounting can be incredibly effective. And that's exactly what our research found:
Notice that lower discounts (20-30%) drive higher engagement than the control group, but offering a 15% discount actually drive the most conversions vs. control.
Simply put, higher discounts tend to drive more window shoppers, while lower discounts are the perfect nudge your loyal shoppers need to covert.
So, generally, if you're offering a discount, it's best to keep it low
You'll drive more conversions from your loyal customers without sacrificing too much profitability or drawing in the wrong crowd.
Bonus Tip: More important than understanding discount amounts is understanding buyer propensity:
The most effective discounts take into account how likely a user is to convert.
- If a user is already likely to buy, a discount is just giving away margin.
- If a user isn't likely to buy, discounts are ineffective (Send a product recommendation instead.)
- If a user is 'on the fence' (somewhere 60-80% to make a purchase), then send a discount.