Marina Dias
Marina Dias,
Pricing Solution Consultant

Content navigation:

Discounting Tactics That Don’t Put Your Pricing Strategy At Risk

Clients always want to obtain the most value for their money while shopping for items. Merchants selling these goods will constantly aim to satisfy their target market's needs while making a profit. It takes constant balancing to satisfy merchants' needs to maintain profits and customers' needs to seek out offers. This is why you need to know how to discount the price smartly. 

If you often run promotions, use discount pricing, and cut prices, you risk having your product seem cheap and devalued by your consumers. For this reason, it is important to know more about discount pricing. In this article, you'll learn "What is discount pricing?" and look at several efficient discount pricing techniques for e-commerce businesses.

What is Discount Pricing?

Discount pricing is a promotional pricing strategy in which the initial cost of a product or service is lowered to boost sales, move inventory, and increase traffic.

Discounted cost prices appeal to people because they make them feel like they are getting a good bargain. Moreover, discounting techniques create a feeling of urgency that may encourage additional sales. Businesses often provide discounts for cash payments, bulk purchases, and holidays.

Why Discount is Important?

A crucial meaning of discount in business stems from the fact that discounts hold immense strategic value for businesses aiming to thrive in competitive markets. Understanding why discount is important is crucial, as it goes beyond merely attracting customers — discounts impact customer retention, inventory management, and brand perception.

The importance of discount lies in its ability to influence purchasing behavior. Discounts create a psychological incentive for customers, encouraging them to buy immediately or increase the volume of their purchases. This sense of urgency is particularly effective during seasonal sales or exclusive promotional events, driving significant short-term revenue while fostering brand engagement.

From an inventory perspective, discounts help retailers efficiently manage stock. By offering discounts on older or slow-moving products, businesses can clear shelf space for new inventory, reducing storage costs and preventing waste. This aligns with the operational need to maintain an optimized product lineup, which is especially critical in fast-moving industries like fashion or electronics.

Another reason why discount is important is its role in building customer loyalty. Discounts tailored to specific customer segments or loyalty program members can strengthen relationships and enhance repeat business. By showing appreciation for their customers, retailers can create goodwill, directly contributing to a positive brand reputation.

Additionally, the importance of discount extends to enhancing competitiveness. In a crowded marketplace, discounts can differentiate a retailer from competitors. Thoughtfully designed discount campaigns—such as those tied to customer milestones or exclusive memberships — can make a brand stand out, driving sustained customer interest.

Ultimately, the strategic use of discounts contributes to long-term business goals, from improving sales volumes and managing inventory to building a loyal customer base. Retailers must recognize why discount is important and employ it in a way that aligns with broader objectives, ensuring that it supports sustainable growth and profitability. 

How Does Discount Work? 

Discounts are an essential component of retail strategy, offering customers a financial incentive and driving business goals. Understanding how discounts work begins with recognizing their psychological and economic impact. Discounts make products more accessible by reducing their perceived cost, creating a sense of value that motivates customers to purchase.

The mechanism behind how does discount work relies heavily on customer psychology. Discounts trigger the “fear of missing out” (FOMO) and urgency, encouraging quicker purchasing decisions. Limited-time offers, for example, leverage this principle effectively by motivating customers to act before the deal expires. Additionally, discounts tap into consumer emotions, making them feel they’re gaining more for less, thus enhancing their shopping experience.

Economically, how do discounts work to boost sales volume is straightforward: they attract both price-sensitive customers and those who might otherwise delay purchases. This increases foot traffic, clears inventory, and improves cash flow. To give you some examples of discounts, bundling encourages bulk purchases, while targeted discounts for loyal customers strengthen relationships and promote repeat business. To know how to discount the price smartly, you must first have two things: clear goals and accurate market data. 

Retailers also use analytics to understand how discounts work in their specific market. By analyzing sales data, they identify which products benefit most from discounts without eroding profit margins. Strategic discounting ensures that businesses maintain a balance between attracting customers and preserving profitability. The next question to be answered is how do you find the discount price?

How to Calculate Discount Prices?

Now that you know the definition of discount pricing, we can move on to examples of discounts. Here is a fact: one of the most essential abilities needed to manage finances is the ability to calculate discounts. Discounts are typically calculated by multiplying the originally indicated price by the discount percentage expressed in decimals. You must compute the difference between the item's initial price and the discount to get its net selling price. So, how to get the discounted price? Use the procedures listed below:

  1. Determine the difference between an item's list and final selling prices.
  2. Deduct the selling price from the list price to get the value of the discount amount.
  3. Find the ratio between the discount amount and the list price, then multiply it by 100 to get the discount %.


Let's take some numbers to illustarte how do you find the discount price in real life. 

For instance, if a jacket has a $45 list price and a $30 selling price, you may determine the discount by deducting the selling price from the list price. 

That is, $45 - $30 = $15. You now need to discover the ratio of the discount amount and the list price, which is $15/$45, to compute the discount % on the shirt. Multiply it by 100. 

It suggests that 15/45 × 100% equals 33,3%, so the garment is now 33,3% less expensive.

What are the 3 Types of Discount Pricing?

There are three primary types of discount in marketing. Which one is ideal for you will depend on several factors, including your product, industry, goals, and overall company plan. It's better to get acquainted with each of them since they provide distinct advantages and may be used at various stages of your sales process.

The image below helps to understand what the buyer is most focused on, especially during the holidays. This knowledge is important while managing all types of discount in marketing.

Seasonal

Sales events, such as Black Friday and Cyber Monday or the pre- and post-Christmas sales, are driving 22% of clients and are becoming an increasingly important part of a retailer's earnings. This rise in sales volume is mostly due to competitors' seasonal discount tactics to provide enticing offers to customers.

However, using the same strategies can boost client involvement during other high or low seasons. This can include matching other people's offerings on the market or creating interest during a less common period when rivals aren't as likely to run deals.

Clearance

Stock clearances creates a feeling of urgency, intending that customers would feel pressured to buy immediately to avoid missing out. These may be pretty successful strategies for generating attention outside of significant annual occasions. To ensure that the company can meet any surge in demand, they must be controlled appropriately. The need for fulfillment and delivery or an increase in online traffic might cause this.

Volume

These discounts examples, which often provide greater savings with larger orders, encourage customers to purchase goods in larger numbers. They are very helpful in B2B or intermediary firms, where the clientele is more used to placing bulk orders. When used correctly, this pricing technique may be a helpful tool for significantly reducing stocks while still ensuring that demand can be satisfied.

A Discount Pricing Example

Discount pricing tactics often coexist with other extended marketing campaigns. When you buy certain point items, they combine to give you even more rewards. Amazon employs this tactic. The internet giant has a brilliant strategy: offering goods subscription discounts. This strategy works well at weaning consumers off of manual product repurchases that they will eventually need to make. Amazon gives them a percentage discount in exchange at that exact moment.

Another example of discount comes from Alibaba offering a lower price for purchasing in quantity. The massive Chinese retailer offers discounts ranging from 20% to 60% on inexpensive items for the vendor to ship. While the merchant maintains its profitability, it acquires notoriety, accessibility, and positive ratings, while the user's expenses drop dramatically. Alibaba remains one of the most illutrative low price strategy examples.

Lastly, an example of discount from IKEA. Their clients' two most sought-after promises are "new lower price" and "IKEA family member offers." Both discuss various applications of discounted pricing. The former entails seasonal price reductions on a broad range of commodities, maybe due to production realignment or increased demand for the product. The latter implies cumulative discounts honoring the loyalty of regular clients. 

Depending on the season, individuals obtain discounted rates on certain items as members of a shopping club. IKEA recently launched a promotion that offered monthly discounts on a different category of products. As a result, their clients may take advantage of these deals all year round.

These are just a few discount pricing examples and you may see a similar functional discount example at your favorite stores. Now, let's explore how to discount prices effectively in different industries.

Who Does Discount Pricing Work Best For?

Discount pricing works best for retail stores. They can offer discounts to clear out excess inventory. This helps liquidate unwanted products quickly. For SaaS companies, discount pricing is trickier. The price reflects the value offered. Discounting can undermine perceived value. Just like in retail, SaaS companies can hardly succeed with promo without relying on smart discount solutions.   

Customer segments value products differently. Some are price-sensitive, and others value different features. Discounts may attract bargain hunters initially. But long-term, pricing must align with customer willingness to pay. This is why you need to clearly understand the benefits of giving discount to customers before launching the promo. 

Discount Pricing Strategy Pros and Cons

Whatever the situation, there are always benefits of giving discount to customers but there are also disadvantages. And it is essential to know both in advance before planning the right discount pricing strategy.

Advantages of discounts: 

  • Aids in closing transactions. Businesses may enhance sales and save bargains by offering discounts to customers when prospective offers are about to expire. Please take note of this: Don't base all your sales efforts on discounted prices.
  • Lowers the energy of activation. Offering discounts allows clients to choose a purchase more quickly rather than deliberating over it for too long. Discounts let customers test a product until they're ready to commit, which lowers their activation energy.
  • Promotes recurrent purchases. By offering the lowest discount price on your product or service, you may attract prospective customers who would not have found you otherwise. This first encounter might result in an enhanced possibility of purchasing and greater interest. Due to the initial incentive they received, it might encourage clients to make a purchase even after you stop offering the discount.

Disadvantages of discounts:

  • Reluctance to make a payment. Consumers who obtain a discount when they first sign up often have a lower willingness to pay than those who do not. If you give them a discount straight away, it may be harder to upsell them on extra goods or services. It might also be more difficult to persuade them of the advantages of more expensive offers as their sense of value could be fixed on the reduced price.
  • Increased attrition among customers. Consumers who have benefited from discounts often have a far greater percentage of customer attrition than those who did not. Accordingly, giving discounts might actually result in a shorter average client lifespan. Discounts may work well to draw in new clients initially, but it's crucial to consider how they can affect repeat business.
  • Perception of warp bands. Offering high discount on goods or services regularly runs the danger of making your company known as a "bargain brand." This may give the impression that it is less expensive or of worse quality. Customers can concentrate on your goods' value or distinctive features rather than your brand's constant pursuit of the lowest discount pricing. Your brand's reputation and sales will suffer significantly from such a view.

 

Ways Discount Pricing Strategies and Tactics Can Improve Customer Loyalty

Discount pricing strategies in retail and tactics effectively improve customer loyalty when implemented strategically. Here are some ways discount pricing can enhance customer loyalty:

Referral Discounts

When customers recommend new customers to your brand, they get these discounts. 

This referral code offers a two-way discount: the new customer will get money off their first purchase, and the referrer will receive money off each additional customer they bring in. Using a discount strategy helps boost organic traffic and brand exposure. 

According to Business Insider, customer loyalty programs incentivize customers to engage with and support their favorite brands. What it means is that your referral program can become a self-fulfilling prophecy.

Discounting Based on Location

Two common uses for location-based discount models are reducing delivery costs or targeting customers in certain areas. Leveraging this method often results in lowering delivery costs for certain consumers in specific locations.

Volume Discount Pricing

This kind of pricing technique, sometimes referred to as quantity discount pricing lowers prices for large purchases made by customers.

 Two categories of volume discounts exist.

  • Non-Cumulative Quantity Discounts. This discount encourages customers to make large purchases since it is only available on a single order.
  • Cumulative Quantity Discount. It incentivizes customers to make more purchases by providing discounts on orders placed within a certain time frame.


Generally, volume discounting works best in B2B e-commerce.

When selling consumable items, high discount pricing might benefit consumer goods e-commerce firms.

Conclusion

A discount pricing plan is one effective method for growing your e-commerce consumer base and increasing conversion rates. You can enhance sales, foster a sense of urgency, and foster loyalty by providing discounts. Discounts examples are not all the same, however. What is obvious though is that the meaning of discount in business can hardly be overrated. 

You can safeguard perceived value while encouraging sales and raising order values with clever offers and targeted marketing. The secret is to test and optimize continuously. And do the latter smartly, you might need smart discount solutions.  

Get retail insights