Your ultimate guide to discount codes
Article topics
- The advantages of discount codes
- The disadvantages of discount codes
- How to use discount codes in your eCommerce store
- Discount codes: Frequently asked questions
Did you know that over 90% of UK shoppers have used a discount code?
These codes can be a fantastic way of encouraging new customers into your online store, as well as rewarding existing customers for their loyalty.
However, it’s important to set them up and promote them correctly, so you don’t risk selling at a loss.
In this article we’ll explain the pros and cons of discount codes, the different types of code you can use, and how to set them up on your eCommerce website.
The advantages of discount codes
Thinking about using discount codes in your online store? Here are some of the reasons why you should take advantage of them.
Can nudge customers into a sale
In a time where budgets are tight, a well-placed discount voucher can entice customers into making a purchase.
In fact, seven out of ten shoppers have made an unplanned purchase after receiving a discount offer.
You can also use discount codes in your retargeting and remarketing strategies to appeal to customers who have visited your website and haven’t made a purchase, or who have bought from you in the past.
For example, you can offer customers who have put a product in their shopping cart but haven’t bought anything a discount code to complete their purchase. Use this strategy sparingly though, otherwise you’ll find that customers abandon their carts just to get a discount!
Can reward loyal customers
It’s much easier to encourage an existing customer to buy more of your products than it is to acquire brand new customers.
You can use discount codes to thank regular customers for their loyalty, encouraging them to come back to your store time and time again.
For example, you can offer a discount code in a birthday email, giving customers a treat on their special day!
Can sell old or slow-moving products
If you have stock that you want to get rid of, you can use discount codes to sell these products at a heavily discounted price, freeing up space in your warehouse.
The advantage of offering discount codes here, rather than say, through a sale that’s open to everyone, is that you can strategically target specific customers. You can also use discount codes to create exclusivity and urgency, potentially meaning you sell more stock.
Can grow marketing lists
You can use discount codes as an incentive for people to sign up for your email and SMS mailing lists, meaning more people you can market to in the future.
You can offer a standard discount code, or alternatively, use gamification, like this fun ‘spin-to-win’ pop-up!
Can track success
You can use discount codes to see how successful your marketing campaigns are across different marketing channels, as well as with influencers and content creators.
By giving each influencer you work with their own unique discount code, you can see which ones bring in the most customers and provide the best return on investment.
You can also give dynamic discount codes to individual customers to see who is most receptive to your marketing. We’ll talk more about this type of code later.
The disadvantages of discount codes
While discount codes can lead to increased sales and customer loyalty, they do have their disadvantages, especially when they’re not used in the right way.
Can lead to a loss in revenue
As you’re offering a discount on products, discount codes mean you make less money on each product you sell.
If you do use codes, it’s important to work out how much discount you can give while still keeping your profit margins healthy. Understand how much you typically sell a product for, and how much it costs you to buy or manufacture.
If you’re not sure, start low (for example, 10% off) and gradually increase the value.
Can lead to cart abandonment
Over a quarter of shoppers say they will leave a website to search for a discount code.
The issue with this is that they may not come back. They may not find a code and decide they don’t want to go ahead with the purchase, or they may stumble across a competing eCommerce retailer that does offer a discount.
If you offer discount codes, it’s vital to keep shoppers on your website until they’re ready to checkout. You can do this by:
- Applying discounts directly at checkout
- Using pre-discounted links – when a customer clicks on the link, the discount is automatically applied
- Showing discount codes on your website, for example, in a pop-up, banner, or on the relevant category page
If you don’t plan to offer discount codes to customers, take the discount code box out of your checkout. That way, you don’t risk customers getting distracted!
Can ‘cheapen’ your brand if overused
While discount codes can increase sales, it is possible to have too much of a good thing.
If you’re overly reliant on discount codes, it can make customers reluctant to pay full price for your products. It can also make customers think you have something to hide by discounting your products all the time, leading to a loss of trust.
It’s best to use them sparingly, for example, on special occasions, and to target niche customer segments rather than a general audience.
Can be costly if mismanaged
65% of shoppers say that they consider looking for offers on products as ‘absolutely standard practice’. This means you may find customers are willing to do anything to get as big a discount as possible, including guessing discount codes and using codes that aren’t meant for them.
There are things you can do to prevent customers misusing your discount codes, including setting expiry dates and limiting the number of uses per customer. We’ll share some more ways you can manage your discount codes later on.
How to use discount codes in your eCommerce store
Planning and preparation are vital when creating discount codes. This maximises the chances of your codes being used successfully.
Before you create a discount code, ask yourself the following questions:
- What goal do you want to achieve? For example, increasing seasonal sales, boosting average order value, or acquiring new customers
- What type of discount do you want to offer? You can offer a percentage discount or money off an order. You can also offer free or expedited delivery
- Who do you want to offer a discount to? Do you want to offer a general discount to everyone, or a specific segment of your audience? For example, you may choose to focus on customers that have bought from you in the past that you want to re-engage with
- How much of a discount do you want to offer? While you want to entice customers in with a good deal, you don’t want to run your campaign at a loss
- How long do you want your discount code to run for? Setting a start and end date makes it easier to manage your code and creates a sense of urgency for customers
- What restrictions need to be in place? For example, will some products be exempt, and will there be a limit on how many times each code can be used?
- Where will you promote your discount code? For example, will you promote it on social media, in email campaigns, or by using pay-per-click (PPC) advertising?
Here are some other things to bear in mind if you want to use discount codes:
Clearly advertise any restrictions
It’s highly likely that you will want to put some limitations in place for your discount code.
Many online stores don’t allow codes to be used on sale, clearance, or already discounted items, or on gift cards.
We recommend clearly promoting any restrictions anywhere that you make your code available. This ensures customers know what they can and can’t buy with their discount code, reducing the risk of complaints, refund requests, and chargebacks.
Test your discount codes before you use them
We’ve seen a lot of eCommerce businesses make a lot of mistakes with discount codes. For example, one online store thought they were offering 20% off each order when in reality, they were offering £20 instead!
Test every discount code you offer before promoting it, on desktop, tablet, and mobile. Make sure the discount works on the right items and that the discount is clearly shown in any transactional emails and messages to customers.
We recommend creating a spreadsheet which lists every discount code you’re running, and which ones have been retired. Regularly revisit it to check which codes are still active.
Don’t make your codes too guessable
Smart shoppers looking for a bargain often know to try a few common discount codes when buying online.
If your discount codes are too predictable, there’s the risk that anyone could swoop in and make a substantial saving, which means a loss of revenue for your business.
Rather than using easy-to-guess codes like WELCOME10, HELLO10, or SUMMER10, consider slightly more obscure ones.
An alternative is to use unique, single-use codes – sometimes referred to as dynamic codes. Some eCommerce tools automatically generate a random, one-time-use code for each shopper, which expires once it has been redeemed.
Discount codes: Frequently asked questions
What is a discount code?
A discount code is a combination of letters and numbers that customers can enter at checkout to receive a discount on an order.
They are sometimes called voucher codes or promotional (‘promo’) codes.
What can I use discount codes for?
You can use discount codes in many different ways as an eCommerce business, including:
· Rewarding customers who have already made a purchase
· Encouraging customers who have visited your site or abandoned a shopping cart to make a purchase
· Shifting slow-selling or out-of-season stock
What’s the difference between a static discount code and a dynamic discount code?
A static discount code is a fixed code that is shared with and used by every customer (for example, NEWCUSTOMER10).
A dynamic discount code is a single-use code that is generated for each individual customer.
While static codes are easier to set up and manage, dynamic codes are less likely to be misused.
How can I set up discount codes?
Most eCommerce platforms allow you to set up and manage discount codes in your dashboard, as well as see how many times the code was used.
Some specific extensions and apps offer additional functionality. Think about which features are most important to you to identify the right app or extension for your online store.
What type of discount code is best: percentage-based or fixed price?
It depends.
In our experience, percentage-based discounts are better for lower-priced products as they make them feel like a better deal. Conversely, fixed-price discounts are better for higher-priced products, as these discounts seem more substantial.
However, the correct answer depends on your target audience, your industry, and what you sell. Try A/B testing – run two different discount codes and see which one is most popular with your customers.
Xigen: Your dedicated eCommerce agency
Discount codes shouldn’t be something you impulsively set up in your store in five minutes.
It’s important to understand the purpose behind each discount code, test it thoroughly before launch, and closely monitor it to make sure it delivers the right results. Discount codes are well worth the effort though – shoppers who use codes end up spending nearly a quarter more than those who don’t!
If you need help getting started with discount codes, we’re the eCommerce agency you should check out. We’ve been working in eCommerce for over two decades, helping brands including Dunelm, Jacksons Art, Lark & Larks, and Huntsman make the most of their online stores. Contact us today and take the first step towards boosting revenue in your online store.
Contact us today and take the first step towards boosting revenue in your online store.
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