It's tough to stand out selling online. For many, a core sales tactic is the use of discounts to get customers to click "buy." But every dollar the customer saves is a dollar you don\'t add to your revenue and profits. This article, based on a classic study by Kopalle, Mela, and Marsh, gives you practical tips and strategies to boost your online sales with a scientific approach to discounting.

Understanding Baseline Sales

Baseline sales are essential in understanding the effect of sales promotions. These are the sales you’d have without any promotions. Managers use models to measure baseline sales to see if promotions are profitable. It’s important to understand the effects of past promotions, as they affect both the estimates of baseline sales and the responses to promotions.

How Discounts Affect Sales: Research Findings

There’s strong evidence that more discounts will boost sales in the short term (this is probably intuitively obvious to anyone). Kopalle, Mela, and Marsh look closely at this, but took it a step further, showing how different discount levels can change how customers act and, therefore, sales results not only in the short term but also later in the customer lifecycle. 

The research found that promotions have positive effects on sales when they occur, but they also have negative future effects on baseline sales (in other words, it succeeds at acquisition, but falls short with respect to loyalty marketing). This finding challenges the traditional static models used by managers to assess the profitability of promotions, which often do not account for these dynamic effects. As a result, reliance on static models can lead managers to overpromote, underestimating the long-term negative impacts of frequent discounting on regular sales.

The findings suggested that higher-share brands tend to over-promote, while lower-share brands do not promote frequently enough. The model projected that using a more dynamic approach to pricing and promotion could improve profits by 7% to 31%.

Practical Tips for E-Commerce Discounts

1. Check Baseline Sales Regularly: This helps you see the real effect of your promotions and make informed decisions and plans.

2. Look at Past Promotions: Past promotions give useful information. Look at their results to improve future strategies and find the right balance between discounts and sales responses.

3. Use Strategic Pricing: Use the information from research to create and use pricing strategies that fit your market and customers.

The bottom line? Base your strategies on real evidence and keep improving your methods. Doing this, you can increase sales, make more profit, and stay ahead in the market.

Use strategic discounting , but remember, the work doesn’t stop after you start; it needs regular checking and adjusting. Stay informed, be strategic, and see your online store grow. Interested in more science based loyalty research? Check out this post that explores the concept of continuance.