Promotional pricing 101: the ultimate 2023 guide
Shopify merchants don’t need to shadow the retailer game book of running sale after sale. Instead, they’ve got an identity — propped by a backstory — to attract and retain customers.
We preach the above. A lot. So it may seem like we’re averse to promotional pricing.
Not so. Promotional pricing strategies are advantageous for stirring demand and boosting sales in the short term.
We’re just judicious in their use, as should every Shopify merchant walking the tightrope of staying true to itself while remaining profitable and maximizing customer lifetime value.
We’re exploring all things promotional pricing, starting with the pros and cons. We’ll walk through five of the most common techniques and our advice for employing them. Stick around for best practices affiliated with promotional pricing — from discount code tips to getting the word out — and how to measure success.
The benefits of promotional pricing
Who doesn’t like to save money?
There’s a class of consumers who get a rush from snagging a deal. Others depend on discount pricing to improve their money management. For the financially fraught, saving a buck is a necessity.
The last is especially true in times of economic slowdowns. A September 2022 report cites that 40% of U.S. consumers shop for deals because of rising prices.
Economy woes aside, there are other reasons to embrace promotional pricing:
- Rid your Shopify store of excess inventory. Products that sit around for too long do no good and take up space. Moving them at a reduced profit could be a better alternative. Think “last chance on this low-stock inventory.” Flash sales — bargains pinned to a minimal timeframe, like just a few hours — are a fantastic route for drumming up urgency.
- Launch a new product. An addition to your product lineup deserves extra attention, and a sales promo hits the spot. Drive extra excitement with a pre-sale event exclusive to subscribers, customers, or any segment of your audience. (PS: Seguno has a pre-built email campaign for a product or collection launch.)
- Reward customers. Showing appreciation to supporters should be a part of every Shopify merchant’s playbook. Extend a discount to a first-time buyer for their next purchase, for example, or provide price breaks when loyalty program customers reach a milestone. (Good to know: 79% of consumers are more likely to support a brand because of its loyalty program.)
- Drive brand awareness. We always encourage Shopify merchants to toot their horns on occasion. Promotional pricing can be the caveat before switching to what makes you different or simply saying, “thanks for helping us live our dream.” A shop anniversary — or the shop owner’s birthday — is the perfect time for this approach.
The disadvantages of promotional pricing
Now for the cons. Or, let’s rephrase that: the possible downfalls of promotional pricing.
- There is a real risk to your profitability if you’re not strategic. Overly focus on revenue with too many promotional pricing events or haphazard planning, and you invite a business slump. McKinsey & Company outlines four questions for formulating a smart markdown strategy.
- You may damage your average order value (AOV). You could be training your audience to never pay full price because they know another sale will be on the horizon. And if a deal was the catalyst for a new customer, they may likewise only bite when another rolls around or abandon your brand altogether.
- You could sabotage your shop without protections in place. Imagine your margins limit how many deals you can provide. So you build a discount code like CELEBRATE20 and send it to subscribers. That code is leaked on the Internet for anyone to grab. (Hang tight — we’re exploring the intelligent approach to discount codes later.)
- Your brand image might suffer. Frequent promotional pricing events or excessively slashed prices can convey that your shop is inferior to competitors. No one wants to be perceived as subpar.
As we’ve alluded to, these downfalls are avoidable with safeguards.
5 promotional pricing strategies (with email examples)
Suppose you’ve identified a business goal. Next up is selecting the best-aligned promotional pricing strategy.
Five options typically rise to the surface as the most common: discount pricing, buy one get one free (BOGO), tiered discounting, bundling and free shipping.
Discount pricing is the most popular promotional pricing strategy. It works for several goals, whether giving your store a lift or clearing inventory. It comes in one of two forms:
- Dollar value discount; i.e. $10 off
- Percentage-based discount; i.e. 10% off
Studies show that a dollar value discount holds greater sway for higher-priced items than a percentage-based one. The research defines the cutoff as anything more than $100.
For products under $100, the brain perceives a percentage off as a better deal than a dollar discount.
Either way, our general advice is to limit discount sale events to select products or collections. Choose the higher-priced items to benefit your AOV.
Some other tips:
- State the end date to conjure a sense of urgency and ensure clarity; this tip goes for every promotional pricing strategy hereafter
- Reserve sitewide discounts for special times of the year, such as the Black Friday Cyber Monday dash
- Emphasize the savings by showing the regular price (typically crossed out) positioned next to the discounted price
Bonus: lead with the condition and follow with the reward when marketing your discount. For instance, phrase your promo “Spend $100 and get $10 off” rather than “Get $10 off when you spend $100.” Studies show that the “bad news” before the good resonates more.
Buy one, get one free (BOGO)
Which is more appealing from a shopper's standpoint?
- Buy two, get 50% off
- Buy one, get one free
Both result in paying the same price. But the BOGO phrasing sells better because of the psychological pricing strategy of innumeracy. Put simply, humans avoid math. BOGO is a lot simpler to grasp than the alternative.
The BOGO standby is appropriate for some, but not all, products. Don’t apply it to luxe products and those with small margins.
Some other tips:
- Don’t presume that everyone knows the BOGO acronym, so communicate what the deal entails. BOGO of equal or lesser value is the standard language.
- If BOGO is too much to recoup, then “buy one, get one ½ off” may be palatable. Or B3G1. You get the idea.
- Feature photos or illustrations to reinforce that the shopper gets more product for the same amount of money.
One word of caution: careless parameters can undervalue your products. You don’t want to trigger thoughts like, “They make so many of these that they’re giving them away."
Unlike the straightforward discounting and BOGO strategies, the “buy more, save more” approach of tiered discounting aims to raise your AOV.
The greater the cart value, the greater the savings. Here’s where merchants can make a case for both cross-selling and upselling.
The premise is that shoppers lose out when their spending level is short of meeting a threshold. If you only need to spend another $5 to receive $20 worth of free product, why not keep shopping? So the thinking goes.
You’ll need to do some math if you want tiers to work in your favor. Start with a minimum purchase discount strategy. Calculate your AOV over the last few months. Add 10% to 20% to determine your first threshold, then add subsequent tiers.
Ecommerce guru Nik Sharma demonstrates how this could play out:
Use Seguno’s Dynamic Banner Suite to create discount tiers and automatically apply them to shopping carts.
The promotional pricing strategy of bundling involves packaging complementary products and selling them at a reduced price. Enter cross-selling and another shot at raising AOV.
Customers benefit in other ways aside from cost savings. Bundling can:
- Introduce products they may not have considered or are unwilling to pay full price for
- Provide convenience with an all-in-one solution
- Expand understanding of how to use the product(s)
Some businesses favor the pure bundling concept, in which there is no other way but to buy the products as a unit. But we like the idea of mixed bundling — making all components available for individual purchase. After all, mixed bundling is promotional pricing, by definition.
- Demonstrate that the consumer is getting more for their money by displaying the bundle price versus the tally of individually priced products
- Show what's inside the bundle; visuals speak volumes
Pro tip: bundles are a great solution to help gift-givers.
Baymard Institute research shows that the average cart abandonment rate hovers around 70%. In other words, only three of 10 shoppers who reach a Shopify store checkout typically proceed with a purchase.
Shipping costs are a significant culprit behind shoppers jumping ship. Per the Baymard Institute, 48% of consumers abandon a cart during online checkout because the extra costs — shipping, taxes and fees — are too high.
We know that most Shopify merchants can’t absorb their customers’ shipping costs. And since 58% of consumers will add items to their cart to qualify for free shipping, set a minimum purchase requirement to meet them halfway.
Make sure the threshold isn’t an arbitrary number infringing on profits. Once again, do the calculations.
How to protect profit margins with discount codes
Big-box retailers can afford to provide generic discount codes to the masses. Shopify merchants usually have a lot more to lose if one runs rampant.
To circumvent a money-losing fate while elevating the efficacy of discount codes, we recommend you:
- Set usage limits when creating discounts in Shopify admin. Limit the number of times it can be used, limit its use to one time per customer, or both. Doing any of these actions will curtail the code’s life if it lands on a coupon-sharing site like RetailMeNot or Honey.
- Schedule an end date. Lessen discount code management burdens by setting an expiration date. More importantly, time-limited promotions accelerate purchases in comparison to open-ended offers.
- Use unique codes to prevent coupon abuse. They ensure that your promo is valid for one-time use by one person. Seguno email marketing users can create unique codes within Shopify’s admin. Non-Seguno email marketers — or Seguno users who want to use unique codes for channels outside of email — can achieve the same effect with Seguno’s Bulk Discount Code Bot.
How to announce promotional pricing offers
We could reserve an entire blog post for promotional marketing channels. Instead, we’ll focus on our specialties.
Promote through your Shopify site
Your Shopify website is the portal to your brand, making a homepage takeover a natural solution for promoting an offer.
But what if a subtler approach is more your aesthetic? Two suggestions:
- Publicize it in a banner. You’ll still attract attention without the in-your-face effect. Banners can accommodate general promotions but not personalized discounts using a unique code.
- Call it out in a website popup. Did you know popups aren’t solely for growing your email list? Use them as a megaphone for sharing company news, such as an offer. Like the banner, you can only include generic and not unique codes.
Seguno’s Dynamic Banner Suite includes banner options for making an announcement, promoting free shipping, and advertising a discount.
Promote through email marketing
Email marketing is your direct line to your audience. Make some noise with a series touting your promo. Not multiple times a day or even daily. That’s overkill and grounds, among some subscribers, for the spam label.
For example, space apart four sitewide sale messages that include:
- An initial sale announcement
- Highlighting products from a best-selling collection
- Magnifying the features of a top product or collection
- Last chance message
Seguno has a pre-built starter campaign pack for sitewide sales and professionally designed promotional email templates.
Email is also ideal for exclusive offers. Choose the customer segments you want to reward, create a unique discount code, and reach out only to them.
Post-promotion: measuring performance
The saying goes that you can’t improve what you don’t measure. Evaluating the performance of a promotional pricing event is equally important as front-end prep work.
Look to discount code reports first. In Shopify, this is the “sales by discount” option.
We hope your ecommerce tool allows for easy viewing of a discount code set’s aggregate sales. If you’re facing a big data dump of individual codes, prepare yourself for the pains of manual calculations.
(Wink, wink: Seguno email marketing plus Bulk Discount Code Bot fit the bill for clean reporting).
Also, investigate Shopify sales metrics, examine email analytics, and check the performance of any other marketing channel you leveraged. Take note of sales, AOV and metrics such as click rates. Compare them to your averages and the results of past promotional pricing strategies.
The data-crunching effort is worth it once the winners and under-performers emerge.
Add promotional pricing strategies to your tool chest
Making progress in ecommerce calls for a promotional pricing strategy from time to time. Executed without forethought, discount pricing or other tactics can quickly lead to destruction.
Here’s our advice, compacted into five steps:
- Define your goal.
- Pick a promotional pricing strategy that fits your aspiration.
- Use unique discount codes and set limitations for greater control over your promotion.
- Market your offer.
- Use performance data to inform your next promotional pricing strategy.
Resist seeing promotional pricing strategies in revenue terms. That’s short-sighted thinking. View it as one resource for attaining a healthy bottom line over the long haul.
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