Promotions are almost always part of a retailer’s sales and marketing mix, and for good reason — they can drive sales and help you move inventory.
But running promos isn’t as simple as slashing prices or putting up a “SALE” sign on your window. To get the most out of them, you need to consider the type of promotions to offer as well as how to execute them.
And that’s precisely what we’ll talk about in this post. We’ve compiled the most common types of sales promotions in retail along with some handy tips to help you implement them correctly.
Let’s dive in.
Types of retail promotions
What kind of promotion would work best for your store? To help you answer that, here’s a rundown of the different types of promos in retail, and how they typically perform.
1. Percentage discounts
The percentage off deal (e.g. “20% off” or “50% off”) is one of the most popular — and effective — types of promotions.
“Hands-down, the most popular style offer is n% off anything,” says Mike Catania, Chief Technology Officer of PromotionCode.org. “We’ve tracked coupon and offer usage over tens of millions of promotions for the past nine years, so we have a solid understanding of what types of deals convert the best.”
As for how to implement this offer, Mike says that storewide percentage discounts typically work best. “5% storewide, with few exceptions, will garner more attention and generate more sales than even a 60% off clearance, the next-best option.”
Krista Fabregas, a retail analyst at FitSmallBusiness.com, is also a fan of percentage discounts and says that they produce one of the highest conversions for discount promotions.
“Percent-off sales are fairly simple to profit-test, too. If net profit numbers don’t hold for a 20% discount, we move it to 15% off and still sell more than if we offered a flat amount, like “$5 off.” Oddly, even if “$5 off” has the greater savings after doing the math, the percent-promotion tends to convert better.”
2. “xx dollars off”
An alternative to “percent-off” deals, this promotion involves discounting items by a flat dollar amount (e.g., $5 off or $20 off).
It’s difficult to tell whether this offer is better than percentage discounts, as studies and tests have shown mixed results.
Krista at FitSmallBusiness found that percentage discounts typically outperform dollar amount deals. However, Craig Simpson at Entrepreneur cites a study which found that a $50 off coupon beat a 15% off promo.
This tells us that the “right” answer depends on your price points, customers, and the perceived value of your offer.
As Craig writes, what matters to your customers is “their initial impression of what sounds like a good deal.” He proceeds to give the following examples (emphasis added):
Let’s say your product is something fairly inexpensive, like a supplement that regularly sells for $25 for a bottle that contains a one-month supply. I would predict that an offer for 40% off would do much better than an offer of $10 off, even though the actual value of the two offers is equivalent.
For a more expensive product, perhaps a piece of exercise equipment that normally sells for $350, I would predict that an offer of $50 off would do better than an offer of 15% off – even though the 15% offer is actually slightly better. The $50 offer sounds like a substantial amount of money. And for most people, figuring what 15% of $350 is may seem like too much work.
If you’re on the fence between a percentage or a dollar amount discount, we recommend that you do the math AND look at your promotion from a psychological standpoint so you can figure out the best type to implement.
Buy One Get One (BOGO) is another common one. This promotion can be applied in two ways: There’s buy one get one free or buy one get the 2nd item % off.
BOGO is typically used to move inventory, so if you’re sitting on a lot of stock that you want to clear out, this promotion could be a good option.
As for consumer response? Krista says that “BOGOs can be iffy for conversions, especially online.”
“BOGO-half-off deals can frustrate customers since the deal always discounts the lower of the two prices. So, in BOGO-half-off, we tend to see lower revenues due to customers searching out the cheaper items for the BOGO pairings. BOGO-free converts better than the BOGO-half-off.”
Multi-buy promotions (i.e., “2 for the price of 1”) is another good option if you want to clear your inventory. But the success of multi-buys largely depends on the types of products you sell.
As Krista puts it, “when considering a multiples-type promotion, first consider whether the product is normally used as a set or is a near-commodity, like socks or wine. There, multiples discounts can work. Otherwise, they don’t.
For example, “Buy 2 Get 1 Free Bottle of Wine” is a winner. “Buy 2 Get One Free Ottoman?” Not going to move much.”
5. Free shipping
If you’re running an ecommerce site (and you totally should), free shipping might be a good promo for you.
Just remember that like most promotions, the effectiveness of free shipping isn’t set in stone. Some businesses find it really effective. “Free shipping always drives the most conversions, and that’s the coupon usage we’ve seen the most,” says Krista
Others, not so much. Mike at PromotionCode.org considers free shipping as “a bit of wildcard.”
“Free shipping offers have the lowest rate of success (as reported by our community) but the highest number of use attempts,” he says. “There are several reasons for this but a substantial one is when the offer is shared, the person sharing the offer had a qualified order and subsequent users did not. Merchants could avoid this confusion by either making blanket policies or by explicitly attaching the conditions of the offer itself.”
For example, instead of offering free shipping on select orders, Mike says it’s better to offer free shipping on, say, all $100 purchases because the latter is easier to understand.
How to decide on the right promotion
We talked about the different kinds of sales promotions you could offer. Now let’s discuss the steps you can take to select the right one for your business.
Be crystal clear with your objectives
The first question you should ask when considering promotions isn’t “What type of promo should I offer?” Rather, it should be, “What do I want to achieve?”
Start by identifying your objectives. Do you want to increase foot traffic? Boost your bottom line? Are you trying to make room for new inventory? The answer will help you decide on the right promotion.
If you want to draw people into your store, for example, then an attractive discount might be the way to go. On the other hand, if your goal is to move inventory, then you should look into BOGO or multi-buy promotions.
Test, test, test
Another way to figure out which promo is the best? Test different types to see what works best for your store. That’s what Gary Nealon, President of RTA Cabinet Store, did when trying to decide on what promotion to offer.
“We surveyed our audience when we were thinking about shifting to a free shipping model, and we found that a “lowest price guarantee” was more important than the free shipping for our niche because people expected there to be a cost associated with shipping big products.”
Should restrictions apply?
Generally, blanket promotions that are easy to understand (e.g., “50% entire store) are a lot more enticing. However, if you’re trying to protect your profits or want to avoid people taking advantage of your offers, it may behoove you to set restrictions such as:
- Product-specific promotions – The promo only applies to certain products or categories (e.g. “Half-off all dresses”)
- Spending thresholds – The promotion will only apply if the customer spends above a set dollar amount (e.g., “Free shipping if you spend $100 or more”)
- Customer-specific promotions – The offer is only extended to a certain shopper segment (e.g., “10% off coupon for all NEW customers”)
If it makes sense for your promotion, see if you can apply any of these restrictions. Just note that the more hoops people have to jump through, the less likely that they will make a purchase.
How to improve the performance of your promos
Promotions need to be… well, promoted. Here are some pointers for enticing people to buy:
Bring about a sense of urgency
Avoid setting promotions with no end date, as this will cause people to dilly-dally. It’s best to implement limited-time offers to encourage customers to get a move on.
This is one of the reasons why flash sales are so effective. Shoppers know that the promo won’t last long, so they act quickly. Studies have shown that 50% of flash sale purchases happen in the first hour.
For best results, add countdowns telling people how much (or little) time they have left to take advantage of your offer. Check out what Habitat did in its store below. In addition to the standard “Sale” signs, they also had “Last 2 days” signage to further drive a sense of urgency.
Have a theme
Create your offers around a specific theme. Doing so will make it easier for people to grasp and remember your promotion.
An easy way to do this is to piggyback on holidays. Mother’s Day, Memorial Day, Labor Day, and the like can always be used as themes. You should also consider piggybacking on “unofficial” holidays.
For example, on National Pound Cake Day, (March 4) BirchboxMan ran a promotion to entice people to “gift” a Birchbox subscription.
See if you can do something similar to your promotions. Find a holiday — even an unofficial one — that relates to your business and use it as a hook to draw people in.
Tie in your loyalty program
Got a loyalty program? See if you make it work with your promotion. If you play your cards right, you could drive member signups and sales.
Why not offer a “Welcome” discount to entice new members? That’s what Gymboree does for shoppers who sign up for their rewards program. Check out their coupon below.
Or, if you’re looking to encourage spending among existing members, why not run an exclusive promo just for your loyal customers? Turn it into an event. Your loyal patrons will love the exclusivity, and you could gain a lot of sales out of it.
If you’re feeling particularly generous (or if you really need to liquidate your stock), consider combining different promotions. Initiatives like “Take an additional 20% off already discounted items” can really grab shopper attention.
If you’re selling online, try combining discount or BOGO offers with free shipping and see how your customers respond.
Implement targeted offers
It’s best to target your promotions towards specific customer groups. Consider creating customer segments according to gender, age group, or spending habits.
For example, if you want to run a sale for a specific brand or designer, you could create a group consisting of people who purchased that brand in the past, then run a promotion specifically for those customers. Or, let’s say you have a group for your VIPs or top spenders. Why not send a special offer just for them?
Check out this example from Tiny Prints. The company ran a private sale for its VIP customers, and they sent a special email code to a select group of customers.
There are no hard and fast rules when it comes to promotions. The “right” one will depend on several factors, including your products, customers, and price points.
The key is to come up with an offer that has a high perceived value while not overeating of your profits. It’s a tricky balance, but when you pull it off, you’ll see the results in your bottom line.
Now, we’d like to hear from you. What’s your favorite type of promotion? Let us know in the comments.