With 62% of shoppers planning to do all their holiday shopping online, both traditional retailers and direct-to-consumer natives are gearing up to offer shoppers anywhere from 20% to 70%—possibly even more—in discounts during this year’s digital-first Black Friday and holiday season.
There’s a dichotomy between pureplay brands that rarely-to-never discount and mainstream brands that have become reliant on always promoting to drive top-line sales in the direct-to-consumer world. The latter approach is a race to the bottom. Yet, many retailers view the prospect of attracting high-intent holiday shoppers, generating revenue and offloading inventory as worth the hit to their margins. But are margins the only thing to take a hit? And is the risk worth the reward?
The risk: Steep discounts can negatively influence brand perception. This is a fact that luxury brands have long been aware of, but which fast-fashion and apparel brands and retailers who are relatively new to ecommerce don’t always heed.
Heavy reliance on discounts can also train consumers to expect—and therefore, wait around for—sales and shop on price rather than value. When this happens, creating long-term brand loyalty or affinity to a carefully curated brand becomes increasingly difficult.
The good news is that blanket discounting isn’t the only pricing strategy out there. Here are seven alternative pricing models and promotional approaches that encourage high-value customer behaviors without sacrificing brand health during the holidays:
- Reward your most loyal shoppers with VIP/membership pricing: The holidays are a great time to give special treatment to customers who consistently buy from or engage with you in valuable ways. Special pricing for brand VIPs boosts customer engagement and loyalty and offers customers a unique shopping experience. One approach to consider is introducing VIP tiers (e.g., the more money you spend, the higher your tier and better your rewards). This system creates FOMO among non-VIPs while offering loyal customers experiential rewards, such as private holiday shopping events, early access to products that quickly fly off the shelves and exclusive holiday savings. And if you charge for access to your program, membership pricing can even be an additional revenue stream.
- Host your holiday sales separately from your full-price experience with an online pop-up outlet store: If you’re looking at the holidays to move excess or outdated inventory, consider doing so in a way that creates the hype from site-wide deep discounting without the margin hit to your full catalog. In the same way, factory outlet stores surged onto the retail landscape, brands like Coach, REI and Vera Bradley are spinning up separate outlet ecommerce sites. These online pop-ups create excitement with aggressive, time-limited no exceptions offers and allow retailers to focus on selling through aged inventory without impacting new collections—especially during Black Friday/Cyber Monday when shoppers are expecting deals.
- Introduce tiered discounts to encourage shoppers to buy more: Buy more, save more promotions encourage shoppers to spend a little extra (perhaps on a gift for themselves too), to take advantage of more savings. For example, a shopper may receive 10% off a $40 purchase but 15% off a $75 purchase. This also helps move inventory while minimizing fulfillment and shipping costs.
- Offer savings to shoppers with a subscription to regularly purchased items: Moderate discounts for recurring purchases are simple to launch and can motivate shoppers who seek convenience for things they buy regularly. While not all subscription items are gift-worthy, shoppers welcome the opportunity to avoid last-minute trips to stores for everyday items like paper goods and vitamins, especially at the height of the holiday season.
- Create an army of employees who double as loyal customers with employee pricing directly on your retail site: Providing exclusive pricing for employees can serve as both a recruiting tool and a sales generator, but often taking advantage of these discounts is complicated or takes place on a completely different site that’s disconnected from the everyday shopper experience. Make it easier for your passionate employees to double as brand ambassadors by integrating employee pricing directly into the regular retail experience. This will demonstrate your investment in them while helping you move inventory. And employees will appreciate the upgraded experience over the holidays when they’re buying for friends and family.
- Optimize pricing based on shoppers’ geographic location: Define a price for the same item at different inventory locations. For instance, a product might be more expensive at a store in New York City than one in Cleveland, Ohio, based on considerations like your costs to sell in—or fulfill to—each location. This will optimize pricing for the customer, helping to maximize margins along the way.
- Give your excess inventory new life: This year, supply chain issues and store closures have left many retailers with excess spring/summer inventory. While a discount would usually be the go-to strategy to move these items, get creative about marketing the products to maintain margins. Position these products as go-to gifts or evergreen products. For example, apparel brands can re-merchandise summer inventory as resort wear to appeal to those heading south during the winter.
This holiday season will be unlike anything retailers have ever seen before, and effective pricing and promotional strategies will play a significant role in determining revenue and profitability for brands. Retailers that consider moving away from blanket holiday discounts and toward a variety of more thoughtful pricing strategies during the holidays will offer shoppers value while also creating long-term brand loyalty. Shoppers will continue to return to these retailers during the holidays and beyond.
Bold Commerce is a software company that specializes in ecommerce websites and application development.