How to Successfully Implement a Discount Program: A Guide for Marketers

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In the competitive world of online business, it’s common to see businesses rolling out discount programs during holidays or special occasions to boost sales. Typically, these promotions are marketed through emails or pay-to-click (PTC) ads. But have you ever wondered how businesses determine the discount rate for each product?

This guide outlines the key steps to design a successful discount program, along with examples from over 10 years of experience in marketing.

1. Understand Your Cost of Goods Sold (COGS)

Before you launch any product promotion, it’s essential to calculate the cost of goods sold (COGS). COGS includes all costs related to producing and selling a product. Here’s the basic formula:

Wholesale price + Shipping costs to your warehouse + Estimated shipping costs to customers = COGS

For example:

• Let’s say you’re selling Diamond Naturals dog food with a wholesale price of $6.99 for a bulk order of 144 bags.
• Shipping to your warehouse averages $0.81 per bag.
• You estimate the customer will cover shipping, so no additional cost to you.

Your COGS is:
$6.99 + $0.81 + $0 = $7.80

Knowing your COGS allows you to set a break-even point when applying discounts, ensuring you don’t dip into your profit margins unintentionally.

Example:

If you sell the dog food for $9.99, you make a profit of $2.19 per bag ($9.99 – $7.80). By knowing this, you can determine the minimum discount threshold that maintains profitability.

2. Review Past Sales Prices

Next, review your product’s past sales performance. Look at two key factors:

1. Profit per unit
2. Sales volume over a specific time frame, such as weekly or monthly.

Using our Diamond Naturals example:

• At a selling price of $9.99, your profit is $2.19 per unit.
• You estimate you sell 250 bags per month, generating a profit of $547.50.

This historical data helps you balance the profit margins when applying discounts.

3. Define the Purpose of the Discount

Every discount program must have a clear objective. Common goals include:

• Increase profit
• Clear out excess inventory
• Attract new customers
• Fulfill a deal with suppliers

Example:

If the goal is to increase profits, your discount strategy must generate more sales volume to compensate for the reduced profit per unit. If the aim is to clear out inventory, then focus on maximizing units sold, even if the profit margin decreases.

4. Set the Discount Rate

Now that you’ve established your COGS, reviewed past pricing, and identified your goal, it’s time to set the discount rate.

Example:

If your goal is a 10% profit increase for March, and you decide to reduce the price of the dog food by $0.50 to $9.49, you must sell more units to maintain profitability.

• At $9.49, you make $1.69 profit per unit. To hit your new goal of $602.25 in profit (a 10% increase), you need to sell 357 bags—107 more than your usual monthly sales of 250 bags.

If you only sell 300 bags, your profit falls short at $507, showing the importance of choosing the right discount rate.

5. Implement Safeguards

While discounts can drive sales, they also carry risk. In the example above, if you don’t reach 357 sales, you miss your profit target. To mitigate this risk, consider increasing marketing efforts by:

• Sending targeted emails
• Running banner ads
• Partnering with affiliates

Such strategies help attract more customers and maximize the impact of your discount campaign.

Keys to a Successful Discount Campaign

Running a discount campaign can increase revenue and attract new customers, but it can also backfire if not properly managed. Here are some best practices to ensure success:

1. Set the Right Duration

Discount programs should be timely and well-planned. For instance:

• Christmas promotion: 3 days from December 21 to December 24
• End-of-season clearance: 5 days from March 1 to March 6

2. Choose the Right Promotion Type

Different discount strategies work for different types of businesses. For example, a luxury store might avoid “flash sales,” while supermarkets could benefit greatly from them.

3. Select the Right Products

Based on your goals, decide which products to include in the promotion. For a clearance sale, you might discount all items, while for a gift-with-purchase campaign, you only need select products.

4. Develop Clear Terms and Conditions

The success of your discount campaign often hinges on the clarity of the terms. If conditions are too loose, customers may exploit them, costing you profit. Ensure the terms are detailed and anticipate potential loopholes.

Example:

In a lucky draw promotion, state clearly that each prize number can only be drawn once to avoid duplication.

5. Target the Right Audience

Some promotions are aimed at new customers, while others focus on rewarding loyal patrons. Ensure your campaign’s terms reflect the target audience.

Example:

A member-exclusive gift campaign should focus on loyal customers, while a sign-up promotion should target new customers.

6. Choose the Appropriate Sales Channels

For businesses with both online and brick-and-mortar stores, decide where the promotion will be applicable.

Example:

You might offer a flash sale that’s only available to in-store customers, while adding extra shipping costs for online customers.

7. Advertise the Discount Campaign

Lastly, don’t assume customers will flock to your store just because of a discount. Promote your campaign through:

• Flyers
• Social media ads
• Marketplace listings

Be mindful of your advertising budget, ensuring it doesn’t eat into your profits.

Conclusion

Running a successful discount campaign requires careful planning, analysis, and execution. By applying these strategies, you can design discount programs that not only attract customers but also maximize profitability.

Try implementing these tactics in your next promotion and watch your sales grow