How To Create A Profitable Retail Discount Strategy

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Written By Charlotte Miller

Are you a start-up wondering how to entice new customers? Perhaps you’re an established retailer looking to sustain profitability and boost sales? Then a retail discount strategy may help you to achieve your goals.

When it comes to discounting products, it can be tricky to strike the balance between maintaining profits and increasing sales. That’s why we’ve put together this guide to help you create a profitable discount scheme.

Define your business objectives

First things first, you need to establish your key objective. This could be anything from increasing sales to promoting specific products or attracting new customers.

Once you have a goal in mind, you can start to put a bespoke plan in place to help you succeed. For example, if you want to promote a new product, you could offer discounts for that specific item only.

Or if you want to attract new customers, you could create a discount scheme offering money off first orders for new customers only. The key thing to remember is that your strategy should always be tailored to your objective for the best results.

Understand your profit margins

To create a successful discount strategy, it’s essential to understand your profit margins. This means getting to grips with both your gross and net profit margins before you implement any offers or discounts.

Your gross profit will tell you the amount you make after production costs, while your net profit shows how much income you generate once all outgoings have been accounted for. This includes things like taxes, operations, marketing costs, and other expenses.  

Having a solid understanding of your profit margins will allow you to work out the amount of discount you can offer without jeopardising profitability.

Tailor your discounts for specific audiences

Another effective method is tailored discounting. This essentially means offering specific promotions to a select group of customers – in a bid to increase sales.

For instance, certain retailers sign up for discount schemes tailored to certain audiences, like blue light workers. The H&M NHS Discount scheme is a great example of this, which offers a 5% discount to Health Service employees.

This is an effective strategy that expands market reach, encouraging both new and old customers to shop and therefore increasing sales.

Choose the right timing

When creating a discounting strategy, timing is crucial. When you launch a discount scheme can have huge impacts on the uptake and success, so it’s important to get it right.

For instance, if demand for your product peaks at certain times of the year – consider implementing discounts during less busy periods. This could mean selling products at full RRP during the Christmas season and slashing prices after the seasonal rush.

You could also use customer behaviour data to make decisions on when to launch a discount campaign. If you have the highest traffic to your online store in the evening, you could launch a discount code from 7pm to midnight to encourage customers to complete purchases.

By defining your objective, understanding profit margins, tailoring offers for specific audiences and nailing the timings, you can start building a successful and profitable discounting strategy for your business.