Choose the right incentive to boost sales and delight customers
Discounts Versus Free Gifts: Which is Better for Your Ecommerce Store?
As an ecommerce business, offering incentives to customers is one of the most effective ways to increase sales and grow your customer base.
When it comes to incentivizing customers to make purchases, discounts and free gifts are two of the most popular strategies. But which one is best for your ecommerce store? While both discounts and free gifts can be effective in encouraging customers to buy, they each have their own advantages and disadvantages.
“Every gift from a friend is a wish for your happiness.”
Discounts: Pros & Cons
Discounts are one of the most widely used methods for offering incentives. By offering customers a percentage off of their purchase, you can encourage them to buy more and increase your sales. In ideal circumstances discounts also give customers a sense of urgency to act quickly, as they know the deal won’t last forever. This can be especially effective if you use targeted promotions to reach specific customers. Problems? Discounts are often the most cost-inefficient way to incentivse sales and as an offer, discounts are hardly exciting.
Free Gifts: Pros & Cons
Free gifts, on the other hand, are a great way to show appreciation to your customers. By offering a free gift with purchase, you can give your customers something they can tangibly appreciate. This can help build loyalty and increase customer retention. Free gifts are often a more cost-effective incentive model (in fact, your expense is represented in your product cost, while the perceived value is the retail price); even a small item like a keychain or a mug can make a great impression. Problems? In rare cases there may not be a great gift to offer and additional fulfillment costs need to be considered.
What Makes Gifts Special?
In terms of perceived value to the customer, gifts tend to have higher perceived value than discounts. This is because gifts are often seen as more special, unique and relevant when compared to a generic discount.
Let’s face it: Many stores are in a constant state of discount, making discounts, especially low value discounts, a pretty mundane offer.
Gifts have an irresistible and scarce quality that discounts do not, especially in saturated markets. It’s also important to consider the cost of offering incentives.
With discounts, you typically have to offer a high discount in order to get customers to act. Not only does this cut into your margins but it also incentivises bad behaviour. From a merchant’s perspective, a discount should not be automatically expected, it should be an offer to incentivise additional sales.
On the other hand, free gifts don’t necessarily have to be expensive. Often stores with large catalogues have a certain type of product that is annoying in that they are popular and sell well but are either too low value or the customer acquisition cost is too high for the item to be profitable — This is a perfect product for gifting because:
- The gift product is inherently attractive, thus making the offer attractive
- The gift product is already ineffective in it’s current sales format
Let’s look at an example:
Jane’s Beach Supply Store is looking to swap its discount model to a free gift model. On Jane’s $100 beach towel the standard discount offered is $15. This works ok, but something more is needed. Jane has a simple beach hat that retails for $15 and costs $7. This product is quite popular but a bit of a drain of resources given the shipping and warehousing costs for such a low value item. By swapping the $15 discount to the beach hat Jane increases her sales and delights her customers, while offering now the equivalent of a 7% discount.
Bam! 2 birds with 1 stone. This is your sign to look through the catalogue and start putting some ideas together, and of course, as with everything: Never stop testing!
Choose What Works For Your Customers
If your customers are more focused on getting the best price possible, when selling a commodity product for example, a discount may still be the best option. Always test and work with the data available.
If, on the other hand, your customers appreciate the gesture of a free gift, and there is an opportunity for your to provide more value, then a free gift may be the way to go. Ultimately, both discounts and free gifts can be effective strategies for increasing sales in your ecommerce store.
Ultimately, it’s important to consider the needs of your customers and the type of incentive that will be most appealing to them when deciding which strategy to use for your store. Discounts and free gifts both have the potential to increase sales in your ecommerce store, but it’s important to choose the right one for your store. May your next month be a big one!